GBP/USD Plummets on UK Political Crisis and Rumor of Reeves’ Departure; US Jobs Report, Trump Tax Bill Delay Contribute to Volatility
The British Pound plunged against the US Dollar, falling close to 170 pips as political crisis shook UK markets. Speculation that Chancellor Rachel Reeves would be ousted by Prime Minister Keir Starmer and a rebellion among Labour MPs that compelled the alteration of a flagship welfare bill erased £5 billion worth of expected cost savings, driving 10-year Gilt yields to the highest level since the 2022 Truss-era crisis. At the same time, in the US, a shocking -33K ADP-reported job loss and Donald Trump’s stalled tax reform bill added more pressure on market sentiment. As much as GBP/USD dropped to a six-day low, technical indicators point towards limited downside unless the pair breaks through key supports. KEY LOOKOUTS • Market attention is on whether Prime Minister Keir Starmer will replace Chancellor Rachel Reeves as internal Labour dissent mounts. • 10-year Gilt yields surged to 4.68%, indicating investor concern regarding fiscal soundness in the wake of the £5B welfare bill reversal. • ADP report revealed the unexpected loss of 33K private sector jobs, which ignited questions regarding the US labor market’s resilience. • The timing of Trump’s vote on the significant tax bill remains unclear, and changing US-Vietnam trade dynamics introduce a new dimension to world trade sentiment. The GBP/USD currency pair fell sharply as political chaos in the UK intensifies, with the British Pound falling more than 170 pips as rumors intensify that Chancellor Rachel Reeves might be ousted from office by Prime Minister Keir Starmer. The market responded vigorously to a rebellion by Labour MPs that compelled the government to drop the welfare reform bill, removing £5 billion of anticipated savings and sending 10-year Gilt yields to post-Truss highs of 4.68%. At the same time, US economic indicators fueled volatility, as the ADP report showed an unexpected decline of 33K private sector jobs in June. On top of that, worries regarding a postponement of former President Donald Trump’s proposed tax reform bill and an announcement of a new trade agreement with Vietnam contributed to unease on global markets. GBP/USD plummeted more than 170 pips as UK political uncertainties shook investor confidence due to gossip surrounding Chancellor Reeves’ fate. Rising gilt yields and a shocking US job loss contributed to market uncertainty. Market participants now look forward to Starmer’s actions and future fiscal indications. • GBP/USD plunged over 170 pips to settle at 1.3562 on account of UK political uncertainty. • Gossip increases that PM Keir Starmer might replace Chancellor Rachel Reeves. • A Labour MP revolt pushed changes to the welfare bill, eliminating £5B in budgeted savings. • UK 10-year Gilt yields jumped to 4.68%, their greatest level since October 2022. • US ADP numbers revealed a surprising -33K loss of jobs in June, shocking markets. • Trump tax reform bill is delayed, with House conservatives calling for revisions. • A new US-Vietnam trade pact was announced, providing for 0% tariffs on US exports. The British Pound was put under heavy stress as political instability intensified in the UK amid heightening speculation that Chancellor of the Exchequer Rachel Reeves might be ousted by Prime Minister Keir Starmer. This came after a dramatic Labour MP revolt that compelled the government to remove pivotal features of its welfare reform bill, essentially wiping out £5 billion in estimated savings. The internal struggle triggered worries about the government’s financial credibility and economic strategy over the long term, continuing to erode investor confidence. People are now keenly waiting to see what Starmer does next amid doubts hanging over the stability of his team and economic agenda. GBP/USD DAILY PRICE CHART SOURCE: TradingView Adding to the uncertainty, the United States witnessed a surprising decline in private sector employment, with the ADP report logging a fall of 33,000 jobs in June. In the meantime, political tensions in Washington stalled action on former President Donald Trump’s suggested bill on tax reform, popularly referred to as “One Big Beautiful Bill.” House Republican conservatives expressed worries about the bill being ready enough, causing its vote to go beyond the anticipated July 4 deadline. In another development, Trump also broke news of an improved trade agreement with Vietnam, subjecting US exports to 0% tariffs and imposing substantial duties on Vietnamese imports. These events are contributing to international economic anxiety, adding to the pressure on currencies such as the Pound. TECHNICAL ANALYSIS GBP/USD dipped below the 20-day Simple Moving Average (SMA) level of 1.3590 and traded a six-day low at 1.3562 briefly before narrowing to slightly above the 1.3600 level. The Relative Strength Index (RSI) fell aggressively from approximately 65 to 54, reflecting diminishing bullish momentum but not yet indicating oversold conditions. Unless the pair stays above the important 1.3560 support level, the general uptrend will continue to remain in force. The consistent break above 1.3650 may expose the price to a test of the 1.3700 level, whereas a failure to support at 1.3600 will lead to a short-term consolidation between 1.3560 and 1.3650. FORECAST If political volatility subsides and the UK government offers clear fiscal direction, GBP/USD can bounce back. A clear break above 1.3650 might gain bullish interest, thus pushing the pair towards the 1.3700 resistance level. Strong news like Chancellor Reeves holding onto her role, passage of important economic bills, or better UK economic data would also enhance investor optimism and a stronger Pound in the short run. But if political turbulence continues to grow or there is a change of Chancellor Reeves, markets will read this as a sign of leadership weakening, further pressuring the Pound. A drop below the 1.3560 support point would push prices further down toward 1.3500 or lower. Also, if future US data continues to strengthen the Dollar or Trump’s trade and tax policies trigger additional market responses, GBP/USD’s downside risks could become even deeper.