Sterling Drops as Politics, BoE Policy Weigh on Pound

Concerns about British leadership and the path of monetary policy continue to impact the currency.

Published on Feb. 10, 2026

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The British pound dropped against the dollar and euro on Tuesday as a broad selloff of the U.S. currency faded, while concerns about British politics and the path of Bank of England monetary policy continued to weigh on the currency. Two-year UK government bond yields were roughly unchanged after falling sharply last week when the BoE kept interest rates on hold in a narrow 5-4 vote.

Why it matters

The pound's performance is closely watched as an indicator of investor confidence in the UK economy and political stability. Uncertainty around the leadership of the Labour Party and the future path of monetary policy are creating volatility in the currency markets.

The details

British Prime Minister Keir Starmer refused calls to quit on Monday after a second aide resigned from his team, sparking a crisis over the appointment of Peter Mandelson as ambassador to Washington. However, Labour sources indicated there is significant resistance within the party to launching a leadership challenge ahead of May's local elections. The euro rose 0.26% against the pound, hitting its highest level since January 21. Analysts noted that the pound remains vulnerable to further downside risks if the political situation remains unresolved.

  • On Monday, British Prime Minister Keir Starmer refused to heed calls to quit.
  • Last week, the Bank of England kept interest rates on hold in a narrow 5-4 vote.

The players

Keir Starmer

The current British Prime Minister who is facing calls to resign amid a crisis in his party.

Angela Rayner

The former deputy leader of the Labour Party who has thrown her support behind Starmer, seen as a potential challenger for the party leadership.

Peter Mandelson

The former UK deputy prime minister who has been appointed as ambassador to Washington, sparking a crisis in Starmer's team.

Bank of England (BoE)

The central bank of the United Kingdom, which kept interest rates on hold last week in a narrow 5-4 vote.

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What they’re saying

“A development that should help to reduce the risk of a sharper pound selloff in the near-term.”

— Lee Hardman, Senior Currency Analyst, MUFG

“Nevertheless, it remains questionable whether Starmer will still be prime minister by the end of the year, despite winning the 2024 election with a strong result and setting out to ensure stability.”

— Michael Pfister, Forex Analyst, Commerzbank

“The risk of a leftist turn in the government, particularly under an Angela Rayner-led Labour Party, presents downside risks to the pound and British assets generally.”

— Enrique Diaz-Alvarez, Chief Economist, Ebury

What’s next

The judge in the case will decide on Tuesday whether or not to allow Walker Reed Quinn out on bail.

The takeaway

This case highlights growing concerns in the community about repeat offenders released on bail, raising questions about bail reform, public safety on SF streets, and if any special laws to govern autonomous vehicles in residential and commercial areas.