GBP/USD forecast: death cross nears as Keir Starmer’s resignation odds jump

The GBP/USD exchange rate came under pressure on Monday morning as investors reacted to the ongoing political uncertainty in the UK. It retreated to 1.3224, down sharply from last week’s high of 1.3460.

Odds of Keir Starmer staying as Prime Minister fall

The GBP/USD pair retreated sharply as investors remained concerned about the UK’s political situation. According to The Guardian, Keir Starmer, who led the Labour Party to the biggest victory in decades, is planning to issue the timetable for his departure today. 

Starmer will exit the premiership, opening the door for Andy Burnham to become the seventh prime minister in a decade. A high leadership turnover is never a good thing as the new premier will come with his team.

Starmer has resisted leaving the premiership since a recent election where the Labor Party lost badly. Today, however, most of his cabinet members have told him that his time was up. A Polymarket poll shows that the odds of him leaving the premiership have jumped to 100%. 

The UK has largely become ungovernable because of the ongoing economic crisis, which is partly because of Brexit. In a statement last week, the Bank of England warned that the underlying economic growth was slower than the headline data suggests.

The most recent data showed that the economy expanded by 0.7% in April and by just 1.1% in the trailing twelve months. 

As a result, the past six prime ministers have struggled on how to grow the economy. For example, Liz Truss became the shortest-serving British Prime Minister by unveiling unfunded tax cuts, leading to a surge in government bonds. 

Starmer, on the other hand, became unpopular because of hiking taxes, something that he had promised he would not do. His decision to appoint Peter Mandelson to be the US ambassador also played a role in his downfall. Mandelson resigned after appearing in the Epstein files.

Bank of England and Federal Reserve decisions

The GBP/USD pair has also slumped after the Bank of England and the Federal Reserve delivered their interest rate decisions. The BoE left interest rates unchanged at 3.75% in its Thursday meeting. This happened a day after data showed that the UK’s inflation rate slowed in May this year.

The Federal Reserve, on the other hand, delivered a relatively hawkish rate decision, leading to more US dollar upside. In a statement, officials decided to leave rates unchanged and signaled that they would hike interest rates later this year.

The hawkish tone and the ongoing US economic strength have pushed more investors to the US dollar, with the DXY Index soaring to 101.50.

GBP/USD prediction: technical analysis

The daily chart shows that the GBP/USD pair has slumped in the past few months. It bottomed at 1.3164 last week, coinciding with lowest level in March. It then rose slightly after hitting the crucial support level.

The pair is about to form a death cross pattern, which forms when the 50-day and 200-day moving averages cross each other. A death cross is one of the most common bearish continuation signs in technical analysis.

Therefore, the pair will likely continue falling, potentially to the key support level of 1.3100. This view will be confirmed if it drops below the key support of 1.3164.