British Pound: Political risks weigh on GBP – MUFG

FXStreet Insights Team FXStreet

MUFG’s Lee Hardman reports that the Pound (GBP) has weakened as UK political uncertainty intensifies after poor local election results for the government. EUR/GBP has risen and cable has fallen, with Gilts selling off modestly. He warns that a potential Labour leadership contest and any shift to the left could increase downside risks for GBP and Gilts.

Leadership uncertainty pressures Pound and Gilts

"The pound has weakened further at the start of this week reflecting building political uncertainty in the UK after last week’s disappointing local election results for the government. Pound weakness has extended overnight resulting in EUR/GBP rising up to 0.8675 and cable has fallen towards 1.3550."

"It has triggered a sell-off in the Gilt market where 10-year and 30-year yields both increased by around 15bps. So far the market moves have been relatively modest but are beginning to reflect building unease over the future of Prime Minister Keir Starmer who is facing growing pressure from within the Labour party to step down."

"It has been reported that 79 of Labour’s 403 MPs have now publicly called on the prime minister to step aside which is moving closer to the 81 MPs required to officially trigger a leadership contest. Prime Minister Starmer faces an important cabinet meeting today."

"A leadership contest whether immediate or more drawn out will add to political uncertainty in the near-term which is negative for the pound and gilts. The risk of a bigger sell-off will increase if Labour shift towards the left."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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