NBP: Stand-Off Over 'Polish SAFE' Killed Deal On NBP Board Appointments: WP

Near-term, GBPUSD is once again in an area of indecision. Following yesterday’s recovery, spot prices are coalescing around 1.3663 – conveniently the 38.2% retracement of the YTD range. In fact, this chart pattern has helped define pivot points, support and resistance for the pair so far this month – which should raise focus on these levels through any incoming price action.

Source: MNI / Bloomberg Finance L.P.

Longer-term, GBPUSD looks prime to be re-rated should there be an extended spell of uncertainty. Consensus looks for a rise to 1.39 into 2027 from 1.36 at the end of Q2 this year, a view that may be challenged should the increasingly positive analyst and technical view on EURGBP so far in 2026 continue to play out. Our broader technical view on EURGBP here: 

Source: MNI / Bloomberg Finance L.P.

This leaves GBP implied vols looking particularly lumpy over the medium-term, with 6m vols narrowing in on 8 points this week. Notably, this puts outright vol at levels comparable with early July last year and, in particular, the rally that coincided with Chancellor Reeves’ appearance in the Commons that triggered questions about Starmer's leadership and the sustainability of his government.

We see the political machinations in the UK over the past few weeks as becoming much more well-priced. While yesterday’s resilience from Starmer is unlikely to reverse the tide of his premiership (Polymarket odds are against Starmer retaining office beyond the end of June – reaching 70% this week), it does mean the fiscal and political approach of the UK is likely to shift to the left in the second half of this parliament, regardless of who leads the party.

• This likely means a re-correlation between UK bond and currency prices, and a change in leadership (whether it’s Rayner, Streeting or, slightly less likely, Burnham) will introduce fiscal uncertainty – playing into the broader views of structural uncertainty for GBP (see more here: https://www.mnimarkets.com/articles/currency-strength-is-latest-sign-that-leftward-shift-is-well-priced-1770642155124 ).
• What’s slipped out of market focus is the possibility that Starmer not only survives both by-election and May local election risks, but throughout the rest of the year. While a swift recovery in his public popularity from current low levels is unlikely – there is a tangible sequence of events where lasts into 2027 – and beyond:
• A narrow Labour hold in Gorton and Denton, expectations management in May (“could have been worse”), no path to becoming an MP for Burnham, a false start for Streeting’s leadership bid (his ties to Mandelson and right-of-Starmer policies) and sufficient market volatility that could scare MPs off any Rayner attempt to become leader.

OI data points to net long setting (TU, TY, UXY & WN) outweighing instances of net short cover (FV & US) as Tsy futures ticked higher on Monday, with ~$3.5mln DV01 of fresh net exposure added in curve-wide terms.