Pound Sterling Slides Against Euro, Dollar on Labour By-Election Defeat

Modified: Friday, 27 February 2026 13:46 BST - Written by Ben Hughes

STORY LINK Pound Sterling Slides Against Euro, Dollar on Labour By-Election Defeat

The pound remained under pressure this week, with EUR/GBP climbing to 0.875.

Political uncertainty intensified after Labour fell to third place in a key by-election.

Prime Minister Keir Starmer is facing renewed scrutiny, with speculation growing that the party may seek new leadership ahead of May’s local elections.

Global markets have been volatile more broadly.

US equities were shaken by Nvidia earnings midweek, with the stock closing nearly 5% lower despite strong results, reinforcing a more cautious tone around AI and technology names.

Oil also spiked higher on Thursday after US-Iran talks in Geneva ended without a breakthrough.

While negotiators described “significant progress,” the United States insisted on the permanent dismantlement of Iran’s enrichment infrastructure at Fordow, Isfahan and Natanz.

Iran rejected the zero-enrichment demand, arguing for a monitored civilian programme instead.

The geopolitical risk premium remains embedded in energy markets as the Pentagon maintains a substantial naval and aerial presence in the region.

For now, the decision to move talks to a technical level in Vienna next week has eased immediate fears, although markets still see a meaningful risk of escalation in March if negotiations fail.

Pound Under Pressure

Sterling has struggled in recent weeks, weighed down by softer economic data and rising expectations of a March rate cut from the Bank of England.

Cooling wage growth and rising unemployment have already shifted the policy debate toward easing.

Now, political risk has added another layer of uncertainty.

The Green Party secured a historic victory in the Gorton and Denton by-election, overturning a 13,000-vote Labour majority.

Hannah Spencer won the seat with 40.6% of the vote, pushing Labour into third place behind Reform UK.

The result is a significant blow to Starmer, particularly in a constituency Labour had held for nearly a century.

Labour’s vote share collapsed to 25.4%, a sharp drop from over 50% less than two years ago.

Internal tensions have intensified, with criticism directed at party leadership over candidate selection decisions and broader strategic positioning.

With the Greens now holding five seats in Westminster and Reform UK continuing to erode support from the right, Labour faces pressure from both flanks.

This dual challenge complicates the path toward May’s local elections and raises questions about leadership stability.

Currency markets are sensitive to such uncertainty.

The pound slid further against the euro following the result, reinforcing the view that UK political risk is becoming a more prominent factor in sterling pricing.

If speculation over leadership change grows in the coming weeks, volatility in the pound could increase further, particularly against a relatively stable euro backdrop.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Sterling Forecasts