Pound FALLS against euro and dollar after PMQs sends markets into chaos

The fall comes amid political uncertainty, with reports suggesting Chancellor Rachel Reeves could face the sack following Labour’s U-turn on the welfare reform bill.

She appeared visibly emotional as Starmer failed to confirm she would remain in her role. This triggered a £3 billion market sell-off after she was seen wiping away tears.

However, Downing Street has firmly denied speculation that Reeves could be ousted from her role, following a tense moment during Prime Minister’s Questions in which the Chancellor appeared visibly shaken.

A spokesperson for Starmer said Reeves has the "full backing" of the Prime Minister and has "not offered her resignation," adding: "The Chancellor is going nowhere."

The uncertainty rattled markets, driving up UK borrowing costs as the yield on 10-year Government debt saw one of the biggest daily rises in recent months.

The Pound remains under pressure against the euro as market analysts point to lingering concerns over UK fiscal policy.

The scenes triggered panic in the markets and sparked warnings that the surge in borrowing costs, if sustained until the autumn, could wipe £3 billion off the Chancellor’s already narrow £9.9 billion fiscal buffer.

Alex Kerr, senior economist at Capital Economics, warned that another tax raid could be on the cards. He said: "Combined with the about-turns on welfare spending and winter fuel payments, which will cost around £6 billion, that leaves the Chancellor’s headroom pretty much wiped out at just under £1 billion.

"That’s before factoring in any possible downgrades to the OBR’s migration and growth forecasts at the autumn Budget."

ING noted that "EUR/GBP remains underpinned by a bullish bias, with the welfare reform reversal doing little to alter that outlook," adding that the currency pair could test fresh lows depending on upcoming UK economic data.

Sterling's dip follows speculation that multiple Government U-turns on welfare reform could pave the way for further tax increases to fill emerging budget gaps.

However, UK Government bond markets have held relatively steady, with 10-year gilt yields hovering near 4.50 per cent. This has helped limit sharper losses for the Pound in the near term.

Looking ahead, MUFG expects GBP/EUR to settle around 1.1630 by the end of 2025.

The euro came under pressure on Wednesday after Eurozone labour market data missed forecasts, fuelling concerns over the region's economic resilience.

Unemployment across the bloc unexpectedly rose to 6.3 per cent in May, up from the record low of 6.2 per cent, dampening investor confidence and weighing on the single currency in mid-week trade.

The pound fell to a two-month low against the euro early Tuesday, touching 1.1640 before edging back to around 1.1655.

The euro has held firm across major currency pairs, benefiting from declining investor confidence in the US dollar.

Tory leader Kemi Badenoch said Reeves looked “absolutely miserable” and challenged the Prime Minister to say whether she would keep her job until the next election.

Starmer dodged the question about whether Ms Reeves would be in place for the remainder of the Parliament, saying Badenoch “certainly won’t”.

Changes to restrict eligibility for the personal independence payment (Pip) were abandoned on Tuesday just 90 minutes before MPs voted on them, wiping out the savings that Reeves had counted on to help meet her goal of funding day-to-day spending through tax receipts rather than borrowing.

Badenoch said: “Today the Prime Minister refused to back his Chancellor, leaving her humiliated.

“She is the human shield for his expensive U-turns. How can anyone be a chancellor for a man who doesn’t know what he believes and who changes his mind every other minute?”