ING’s Francesco Pesole argues that UK political developments and policy risks are weighing on the Pound and supporting a bullish view on EUR/GBP. A Green Party by-election win in a traditional Labour seat is seen as undermining Prime Minister Keir Starmer and adding to existing concerns around fiscal policy and dovish Bank of England pricing, keeping downside risks for the Pound in focus.

Pound pressured by politics and policy

"The pound is facing intensified pressure this morning after the Green Party won a by-election in Gorton and Denton, a Manchester seat previously deemed a Labour stronghold. Anything that is seen weakening the position of Prime Minister Keir Starmer has hit the pound as of late, and the success of a more left-wing party (Greens) in this special election might increase the perceived possibility of a more leftish successor to Starmer should he leave office early."

"We have been bullish on EUR/GBP on the back of concentration risks on GBP: from political noise, to some fiscal risks (albeit small) ahead of next week’s budget announcement, and dovish risks for Bank of England pricing."

"We think the conditions for a move past 0.880 (which is where EUR/GBP short-term sits, in our estimates) remain in place."

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