GBP: Political risks and yields weigh – MUFG

FXStreet Insights Team FXStreet

MUFG's Lee Hardman highlights that the Pound (GBP) has underperformed alongside the US Dollar (USD) and Euro (EUR), leaving GBP/USD and EUR/GBP relatively stable near 1.3500 and 0.8700. He attributes Sterling’s weakness to sharply lower UK yields as Bank of England (BoE) rate hike expectations are scaled back, and to renewed United Kingdom (UK) political uncertainty ahead of local elections.

Sterling pressured by yields and politics

"The pound has been one of the worst performing G10 currencies over the past week alongside the US dollar and euro."

"The pound has been undermined in part by the sharp decline in UK yields over the past week as market participants have moved to scale back BoE rate hike expectations."

"Most notably Governor Bailey stated last week that markets got ahead of themselves with rate hike bets while emphasizing that it is too early to form strong judgement."

"The comments strongly imply that rates are likely to be held on hold at the next policy meeting at the end of this month."

"So far the negative impact on the pound has been limited, but UK political developments have the potential to trigger a sharper sell-off in the month ahead."

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

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