Sterling 'outperformance' continues as labour leadership transition unfolds

Matthew Ryan, CFA Ebury

In a quiet week, market focus was on the likely successor to Keir Starmer as prime minister, Andy Burnham.

Sterling was buoyed by his insistence that he intends to maintain the fiscal rules and reports that his advisors are not seeking additional taxation, though it remains unclear how he intends to fund his social and infrastructure spending priorities.

Ed Miliband is now the clear favourite to be named the new chancellor. While his preference for fiscal expansion is a red flag for UK assets, the limited headroom means that realistically the hands will be tied for any occupant of Number 11.

Bank of England Governor Bailey sounded a dovish note at the Sintra central bankers conference, which helped push market expectations of the first hike all the way to 2027. We have been saying for months that market pricing for higher UK rates was excessive, and this merely cements this view.

Sterling outperformance relative to the euro continues and the pound has broken the tight range that it held in this pair throughout 2026.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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