Commerzbank’s Michael Pfister highlights rising political uncertainty around UK Prime Minister Keir Starmer and the potential succession of Andy Burnham, stressing implications for the Pound. He warns that a drawn-out leadership struggle or looser fiscal stance could weigh on Sterling. Given these risks and expected ECB tightening versus a steady Bank of England, Pfister sees EUR/GBP aiming for higher levels in coming weeks.

UK politics weigh on Sterling outlook

"If a power struggle ensues, the pound is likely to suffer from the resulting uncertainty."

"Burnham will endeavour not to unsettle the markets too much. The risks, however, are likely to be asymmetric. If he succeeds in maintaining the status quo, the pound will react positively."

"But if he calls the fiscal rules into question, the pound is likely to depreciate significantly."

"Given these political risks, we remain sceptical about the pound for the time being. If the Bank of England leaves interest rates unchanged while the ECB delivers another rate rise in September, as we expect, EUR-GBP is likely to target higher levels in the coming weeks."

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