ING’s Francesco Pesole argues the Pound remains vulnerable as United Kingdom (UK) local election results show heavy losses for Labour and early calls for Prime Minister Starmer to resign. Pesole notes GBP weakness preceded the vote on softer risk sentiment, but sees upside risks for EUR/GBP given no prior political risk premium and potential concerns over future UK borrowing under alternative leadership.

Political stress supports EUR/GBP

"The UK’s ruling Labour Party has suffered heavy losses as the results of council elections start to come in. Most areas are yet to declare results, including in the crucial Scottish and Welsh parliamentary elections. Some Labour figures are already out this morning calling on Prime Minister Starmer to go."

"Investors will be watching the cabinet closely for signs of pressure or even resignations, as markets weigh up the possibility of an increase in borrowing later this year under different leadership scenarios."

"The pound had weakened yesterday before any news about early voting results emerged, largely on the back of softer risk sentiment. Still, some politics-related bearish positioning might have also played a role."

"EUR/GBP is little changed this morning, but given that no political premium was priced in ahead of these elections, risks remain on the upside for the pair."

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