Picture by Simon Dawson / No 10 Downing Street
Pound-euro will end the week on a soft note, thanks in part to growing UK political intrigue.
The GBP/EUR exchange rate fell to 1.1467 on Friday, having been as high as 1.1514 on Tuesday, with market focus turning to Britain's Prime Minister and allegations he lied to Parliament.
"Another crisis on Starmer's hands following a Guardian article which detailed how Mandelson's failed vetting was overruled by the Foreign Office, triggering a drop in gilts and sterling," says a note from JP Morgan's trading desk. "Will this be the thing that finally de-thrones Starmer?"
Previous Prime Minister Boris Johnson resigned over allegations he misled the House of Commons, suggesting this is a dangerous time for the current incumbent.
For now, the pound isn't showing any panic, but the prospect of a left-leaning replacement in Number 10 Downing Street is a definite headwind for the currency and will be something to watch in the coming weeks.
"The reopening of the Labour leadership debate amplifies discussion regarding UK fiscal rectitude, or lack thereof. Easing macro risks and moderation in UK OIS pricing have been supportive for growth assumptions and Sterling. However, such considerations are set to be more than countered by political uncertainty," says Jeremy Stretch, Chief International Strategist at CIBC.
Prime Minister Keir Starmer on Friday mounted a defence to allegations he misled the House of Commons by firing a senior civil servant and denying he knew Peter Mandelson failed a vetting process carried out by intelligence services.
Sir Oliver Robbins was fired as head of the Foreign Office on Friday, with Starmer alleging Robbins failed to tell him Mandelson was not considered fit and proper for the job of U.S. Ambassador by UK intelligence services.
"That I wasn't told that Peter Mandelson had failed security vetting when he was appointed is staggering," said Starmer on Friday.
However, there's strong evidence that Starmer did know.
"At a Commons Foreign Affairs Committee session in November 2025, I directly asked Sir Oliver Robbins whether the FCDO had a different view of who should be recommended for the posting of U.S. Ambassador," says Aphra Brandreth, an MP for the Conservative Party.
Robbins response to that question was: "it was clear that the Prime Minister wanted to make this appointment himself."
Watch the encounter here:
At a @CommonsForeign session in November 2025, I directly asked Sir Oliver Robbins whether the FCDO had a different view of who should be recommended for the posting of US Ambassador. His response? "It was clear that the Prime Minister wanted to make this appointment himself." pic.twitter.com/xPqatRN4Xr
— Aphra Brandreth (@AphraBrandreth) April 17, 2026
The problem for Starmer is that he told Parliament that "due process" had been followed when appointing Mandelson. On Thursday, the Guardian reported that Mandelson had failed a security vetting process which was immediately interpreted as confirmation Starmer didn't tell the truth.
News reports from ahead of the appointment showed that it was widely known at the time that Mandelson had failed the vetting process. How could the Prime Minister not have known this when he appointed the now-disgraced Mandelson?
The pressure on Starmer will only grow as next month the country goes to the polls to vote for local councillors and Scottish and Welsh parliamentary elections.
Labour is expected to suffer a drubbing and the Party is restive: he could well be replaced by someone who has little understanding of economics and the parlous state of the country's finances.
For the pound, that's a worry.
However, it's also worth bearing in mind that political concerns can rapidly fade in importance and there's still no real concerted challenge to the PM from the Labour ranks. "We know that political flare-ups don't weigh on the pound for long, but happy to ride EURGBP higher for now as the story is pretty fresh and adds to the list of woes the UK is facing," says JP Morgan's trading desk in a daily note to clients.