Starmer Exit Looms, Hormuz Deal Near: Sterling Retreats

Sterling slipped as UK political uncertainty deepened, with expectations around Starmer’s exit. Burnham's fiscal risk rattles gilts, pulling GBP/USD towards 1.3200. DXY holds near 100.90 as Fed hike bets firm. US Iran peace talks yield a 60-day roadmap; Brent drops 2%. ECB's Lagarde speaks today. Yen is near 40-year lows. Indonesian Rupiah hit by MSCI warning.

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GBP: Sterling Slips as UK Political Chaos Clouds Gilts

GBPUSD 1.3195 | EURGBP 0.8674

Sterling opened with a bearish gap at the start of the week and failed to recover it. The GBP/USD pair traded near 1.3200 in early European hours. Media reports circulated over the weekend that Prime Minister Keir Starmer was set to announce his exit plans, potentially triggering a Labour leadership contest. Andy Burnham, who won a parliamentary seat decisively last week, is widely expected to succeed him. Donald Trump added fuel to the speculation by posting on social media that Starmer was set to resign.

The gilt market seems to be under selling pressure. Investors are now questioning how committed a Burnham-led government would be to fiscal discipline. Concerns centre on the possibility of higher spending and increased borrowing. At the front end of the curve, gilt pricing still reflects Bank of England (BoE) rate hikes that most analysts do not expect, given the weakness in underlying demand. The BoE's dovish trajectory, set against a hawkish Federal Reserve (Fed) and hawkish signals from the European Central Bank (ECB), compounds the pressure on the pound.

The EUR/GBP pair at 0.8674 reflects that shift; the euro is finding favour against sterling as the political picture worsens. If political headlines continue to dominate UK trading, the cross could remain sensitive to further leadership developments.

The bigger picture for sterling is no longer trading solely on growth and inflation expectations. Political risk has returned to the equation, and investors are speculating about a premium for holding UK assets.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3250, 1.3300 and Support sits at 1.3170, 1.3100

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8700, 0.8750 and Support sits at 0.8620, 0.8580

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EUR: Consolidation Amid Hawkish ECB Signals

EURUSD 1.1450

The euro started the week on a softer footing against the dollar but avoided a sharper decline.

The EUR/USD pair traded at 1.1455 in the early European session, down 0.15% on the day. The pair has struggled to break above 1.1570, and the near-term bias is to the downside, with 1.1450 acting as the immediate floor. The euro opened the week on a defensive footing despite ECB hawkishness providing a partial offset.

ECB policymaker Pierre Wunsch signalled last Friday that the central bank could raise interest rates again as early as next month if Eurozone inflation beyond energy prices continues to increase.

The ECB's deposit rate currently sits at 2.25%. Markets are pricing in a further 25 bps in September or October, with another hike potentially following in early 2026. That hawkishness offers the euro some near-term structural support. However, rising expectations that the Fed will hike in December are keeping the dollar firm.

US-Iran peace talks in Switzerland ended the first round with a joint Qatar-Pakistan statement confirming the two sides agreed to a 60-day roadmap toward a final deal. That tempered safe-haven dollar demand briefly but did not shift the EUR/USD trend.

The euro is in a consolidation phase rather than a free-fall. For now, the euro sits between two competing forces. ECB hawkishness offers support. Fed policy expectations and the dollar's yield advantage limit upside, leaving the EUR/USD pair trapped in a tug-of-war between central banks.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1570 and Support sits at 1.1450, 1.1400

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USD: Navigating Middle Eastern Diplomacy and a Hawkish Fed

DXY 100.90

The dollar entered the week near its year's strongest levels. The dollar index (DXY) held at 100.90 on Monday. The index is up approximately 2.7% this year, supported by safe-haven flows and firm rate expectations. US Treasury yields rose further. The 2-year yield climbed to its highest level since early 2025 at 4.2276%. Traders are pricing in 43 basis points of Fed hikes this year, with a 25-basis-point increase fully priced in by September.

The first round of US-Iran talks concluded in Switzerland. The US-Iran peace talks made further progress. Brent Crude futures fell nearly 2% in response, last trading at $79.09 a barrel. Reducing energy prices calmed markets’ some of the inflationary pressure that has been feeding into rate expectations, but the dollar did not relinquish its gains.

Wall Street futures and Treasuries pared earlier losses, but the risk of a Fed rate hike kept dollar bulls engaged. Trump's threat to restart military action in the Middle East and Tehran's earlier announcement that it had closed the Strait of Hormuz again unsettled investor confidence in the deal's durability. Physical energy supply in the region is still tight, and FX and commodity flows are tracking every development in the energy complex.

Periods of geopolitical uncertainty continue to drive demand for dollar-denominated assets. Investor focus has shifted from conflict headlines to the question of how long US rates can stay elevated. Macro-indicators like the upcoming US PCE inflation data will likely dictate the dollar's direction.

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Other Pairs: Yen on the Edge, Aussie and Kiwi Soften

AUDUSD 0.7000 | NZDUSD 0.5728 | USDJPY 161.63 | GBPJPY 213.50

The yen inches toward historic lows. USD/JPY traded at 161.63. A break beyond 161.96 would take the yen to its weakest level since 1986. GBP/JPY held at 213.50.

Japanese Finance Minister Satsuki Katayama stated on Monday that authorities stood ready to respond to currency moves at any time. The warning has not altered the direction of travel. A hawkish Fed and strong US economic data are creating a high-cost environment for any intervention. The Ministry of Finance may be watching the USD/JPY pair push toward 2024 highs while weighing the futility of resisting current US fundamentals. Intervention risk is real but expensive against this backdrop. Upward pressure on USD/JPY is likely to continue.

AUD/USD dipped to 0.7000. The pair is navigating uncertainty around the Iran peace deal and broader risk sentiment. The Reserve Bank of Australia's (RBA) hawkish pause continues to offer the Australian dollar some underlying support, but Middle East uncertainty is weighing on risk appetite broadly. The week ahead brings Australian CPI data, which traders are factoring into expectations for future RBA action. The NZD/USD pair traded at 0.5728. The kiwi is tracking broader risk-off sentiment with no domestic catalyst to offset external pressure.

The Indonesian rupiah weakened as an MSCI warning over market transparency triggered capital outflows. Safe-haven demand for the dollar accelerated the move. A resolution to the US-Iran talks could ease risk aversion in emerging-market currencies, but the MSCI signal introduces a separate structural headwind for Indonesian assets.

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Current Rate Table:

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Market Lookahead

Mon, 22 June

• PBOC interest rate decision
• Canada’s CPI (May)
• Eurozone Consumer Confidence (Jun)

Tue, 23 June

• Global PMI’s (Manufacturing, Services, Composite) (Jun) Australia, Eurozone, the UK and the US

Wed, Jun 24

• Australia’s CPI (May)
• Germany’s IFO Business Climate and Current Assessment (Jun)

Thurs, Jun 25

• US Personal Consumption Expenditure (PCE) (May)
• US GDP Q1

Fri, Jun 26

• Tokyo CPI (Jun)

Throughout the week, we have commentaries/speeches from members of the Fed, ECB, BoE and the RBA Developments in the US-Iran peace deal talks.

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