GBP: Political noise takes its toll – ING
There was a surprisingly large sell-off in sterling yesterday after markets bought into the view that the fiscally responsible Chancellor, Rachel Reeves, could be forced to resign. In retrospect, perhaps PM Keir Starmer merely misjudged the mood of the House of Commons (and the markets) by not backing her straight away (he has now), ING's FX analyst Chris Turner notes.
EUR/GBP to trade in the 0.8600-0.8650 range for now
"Clearly, the UK has some significant fiscal challenges which will come to the fore ahead of November's budget. Before then, however, and assuming there is no surprise exit from Reeves, the focus will be on upcoming Labour government policy."
"Were the government to cave into the left wing of the party again and remove the two-child benefit cap, investors would rightly think that power had ebbed away from the Starmer-Reeves axis, and gilts would be under more pressure."
"For today, Pound Sterling (GBP) is recovering a little and will take its cue from gilts. Any further suggestions from the Bank of England that it could slow its £100bn per year quantitative tightening/gilt sales programme – the decision to be taken in September – could help gilts and sterling. EUR/GBP could sink into a 0.8600-0.8650 range as it awaits further developments."
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FXStreet Insights Team
FXStreet
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