The Pound Sterling experienced a sharp decline on Thursday, with GBP/USD falling 0.9% and breaking below the 1.3500 level, reaching a session low near 1.3395. This move extended a multi-week downtrend from the early-March peak, with the daily candle closing near session lows, indicating persistent bearish momentum through the European afternoon [1].
The primary driver behind the Pound's weakness was escalating political turmoil within the UK Labour Party. Following Labour's significant losses in the 7 May local elections, four cabinet ministers resigned during the week, including Safeguarding Minister Jess Phillips. Nearly 100 Labour MPs publicly called for Prime Minister Keir Starmer to resign or set a departure timeline, while Health Secretary Wes Streeting was reported to be considering a leadership challenge. Despite these pressures, Starmer remained defiant, supported by a statement signed by 111 MPs [1].
Stronger-than-expected UK economic data failed to support the currency. Q1 GDP rose 0.6% quarter-on-quarter, in line with consensus, and 1.1% year-on-year, surpassing the 0.8% forecast. March Manufacturing Production also exceeded expectations, jumping 1.2% month-on-month against a -0.2% consensus. However, these positive data points were overshadowed by the political crisis [1].
On the US side, April Retail Sales matched consensus at 0.5% month-on-month, while ex-autos topped expectations at 0.7%. Initial Jobless Claims edged up to 211,000 versus a 205,000 consensus. The week ahead is expected to bring further market-moving events, including the FOMC Minutes, S&P Global PMI prints, and the University of Michigan consumer sentiment and inflation expectations releases [1].
Technical analysis shows GBP/USD trading at 1.3406, maintaining a bearish near-term stance below the 50-day EMA at 1.3481. The pair's inability to recover above the day's open at 1.3527 suggests continued downside vulnerability, with sellers likely to defend resistance north of 1.35 [1].
CONCLUSION
Despite stronger UK GDP and manufacturing data, the Pound Sterling came under heavy selling pressure due to deepening political turmoil within the Labour Party. Market sentiment remains negative, with technical indicators pointing to further downside risk for GBP/USD as political uncertainty overshadows economic fundamentals.