Rabobank’s Senior FX Strategist Jane Foley argues that UK politics, including questions over Prime Minister Starmer’s position and Labour’s prospects in May elections, will weigh on GBP sentiment. She stresses that GBP’s prior strength reflected aggressive Bank of England tightening expectations, which have since been pared back, leaving the Pound vulnerable as inflation and rate volatility remain elevated.
UK politics and BoE expectations
“This week UK politics, and particularly Starmer’s vulnerability, has hit the headlines once again after he had to defend his position in the House of Commons over the hiring of Mendelson as US ambassador.”
“GBP’s stalwart performance since the beginning of the Middle East war is related to last month’s very sharp about turn in expectations regarding BoE policy.”
“In March, the market swung from expecting two 25 bps rate cuts this year to anticipating rate hikes.”
“As a result, GBP has fallen down the G10 performance leader board this month as March’s rate hiking expectations were softened.”
“Even though GBP benefitted from these inflation concerns last month, we would expect UK political clouds to worry UK markets this spring.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/gbp-politics-and-boe-repricing-shape-outlook-rabobank-202604211421