GBP/USD traded at 1.3528 on Thursday after falling overnight. The pound stayed under pressure near its lowest level since late April amid reports of a possible leadership contest in the ruling party.
The Times reported that Health Minister Wes Streeting is preparing a campaign against Prime Minister Keir Starmer. Starmer said he will not resign after weak local election results, despite pressure from parts of the government and more than 80 Labour MPs.
The cabinet has remained mostly unchanged, though a few junior ministers have resigned. GBP was near-flat against USD at 1.3520 at the time of writing, after pulling back from 1.3650 earlier in the week.
UK data released on Thursday beat expectations. Preliminary Q1 GDP rose 0.6%, matching forecasts, after 0.2% growth in the previous quarter.
March GDP increased 0.3%. This compared with expectations for a 0.2% contraction, easing concerns about a sharper downturn linked to the war in Iran.
We remember how the political noise surrounding the Prime Minister back in 2025 created turbulence for the pound, even as economic data showed some strength. Today, on May 14, 2026, a similar tension exists, but the focus has shifted from internal party politics to the stubbornness of UK inflation. The GBP/USD exchange rate is now around 1.2540, showing that the optimism from last year’s growth figures has faded.
Last year’s surprise 0.6% GDP growth in Q1 2025 has not been repeated, with the latest figures showing the UK economy grew by a more modest 0.2% in the first quarter of 2026. Inflation remains the key issue, holding at 2.9% which is still well above the Bank of England’s target and higher than many other developed economies. This makes it difficult for the central bank to consider cutting interest rates, creating uncertainty that derivative traders can use.
The political rumblings from 2025 serve as a reminder that a discount is often priced into the pound for governmental instability. While an immediate leadership challenge is not on the table, the government’s low approval ratings, currently polling around 27%, mean any negative economic news could quickly revive political threats. For traders, this suggests that implied volatility in sterling options might be underpriced, especially for contracts expiring after key economic data releases.
Given this, we see opportunities in strategies that benefit from range-bound price action or a slow grind lower. The US Federal Reserve has signaled it will hold rates steady, keeping the dollar supported and creating a headwind for GBP/USD. Selling out-of-the-money call options on GBP/USD could be a viable strategy to collect premium, based on the view that the combination of a strong dollar and UK economic challenges will cap any significant rally above 1.2700 in the coming weeks.
