• GBP/USD rebounds to around 1.3175 in Thursday’s Asian session. 
• UK PM Keir Starmer resigned on Monday, throwing UK politics into sudden turmoil. 
• Traders will keep an eye on the US PCE Price Index report for May, which is due on Thursday. 

The GBP/USD pair recovers some lost ground to near 1.3175 during the Asian trading hours on Thursday. However, the potential upside for the major pair might be limited amid UK political instability and rising expectations of US interest rate hikes this year. Traders await the US May Personal Consumption Expenditures (PCE) inflation data on Thursday for fresh impetus. 

UK Prime Minister Keir Starmer resigned on Monday, throwing the country into yet another political crisis. Starmer stepped down under intense pressure following Andy Burnham’s victory in the Makerfield by-election last week. His Labour Party will now need to select a new leader to lead the country.

Traders will closely monitor what Burnham’s policy would look like. Analysts warned that Burnham’s preferred expansionary fiscal stance, higher taxation, and increased gilt issuance could weigh on the British Pound (GBP) against the US Dollar (USD). 

The US PCE Price Index report for May will take center stage on Thursday. The headline PCE is expected to show a rise of 4.1% YoY in May, compared to 3.8% in April. The core CPE inflation is projected to show an increase of 3.4% YoY in May, versus 3.3% prior.  Any signs of easing inflation in the US could undermine the Greenback and create a tailwind for the major pair. 

Meanwhile, traders reassess the timing of possible US rate hikes after the Federal Reserve’s (Fed) hawkish signal. Markets have priced in nearly a 34.2% probability of a 25 basis points (bps) hike at the July meeting, up from 8.5% a week ago, and 66.4% for September, up from 29.1%, according to the CME FedWatch tool.

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