UK political uncertainty builds as USD extends gains

MARKET REPORT

UK political uncertainty builds as USD extends gains

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• USD extends its winning streak to four days, on track for its best weekly performance since late March

   

• UK political uncertainty rises as Andy Burnham throws his hat into the ring – a Labour leadership contest now appears increasingly likely

Recap

USD strength dominated for a fourth consecutive day, with the Bloomberg Dollar Spot Index on track for its best weekly performance since late March. Hot CPI and PPI prints earlier in the week continued to reprice Fed expectations, while Thursday's retail sales and jobless claims data kept the USD bid. The dollar extended gains into Friday's Asian session, further supported by rising oil prices after Trump stated the US does not need the Strait of Hormuz open, pushing Brent crude up as much as 1.7%.
 
GBP bore the brunt of G10 weakness late into the evening. Health Secretary Wes Streeting resigned from cabinet, while Manchester Mayor Andy Burnham confirmed he is seeking to run for Parliament – widely interpreted as a direct leadership challenge to Prime Minister Starmer. Markets are concerned a Burnham-led government could pursue a looser fiscal stance. Angela Rayner also indicated she would enter any future contest, while Chancellor Reeves urged stability. Of the potential leadership candidates, Miliband, Burnham, and Rayner are considered the most negative for GBP, while Starmer, Streeting, and Carns are seen as stable to potentially positive.

Today

Market rates

*Daily move - against G10 rates as of 5pm BST on 14.05.26

** Indicative rates - interbank rates as of 5pm BST on 14.05.26

Our thoughts

GBP faces a particularly challenging session heading into the weekend, with UK political risk now a dominant driver alongside the broader dollar rally. The key question for businesses with GBP exposure is whether the Burnham challenge crystallises into a formal leadership contest – any further escalation over the weekend, when liquidity is thin, could amplify moves.

The Trump-Xi summit outcome will set the broader risk tone. A positive result would support risk-sensitive currencies such as AUD and NZD, while a breakdown would favour the USD, CHF, and JPY as safe havens.

The USD heads into Friday on a four-day winning streak and its best weekly performance since late March. With no major US data scheduled, momentum will be tested particularly if oil prices rise going into the weekend.

JPY warrants attention following hawkish comments from BOJ board member Masu, who called for rate hikes at the earliest opportunity. JPY has so far failed to benefit given broad USD strength, but a shift in risk sentiment could change that quickly.

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