MUFG’s Lee Hardman highlights that the Pound has advanced as EUR/GBP retreats toward 0.8700, supported by firmer UK growth data and BoE Governor Bailey’s reluctance to clearly signal a March rate cut. However, a tight by-election in Gorton and Denton poses political risk, where a Labour defeat could briefly weigh on Pound performance.

By-election risk for pound sentiment

"The pound has strengthened at the start of this week resulting in EUR/GBP falling back towards the 0.8700-level after hitting a high last week at 0.8752."

"The UK rate market has moved to slightly scale back expectations for a rate cut next month but is still pricing in around 18bps of cuts."

"Political risks in the UK will also be in focus at the end of this week and could potentially have an impact on pound performance."

"A defeat for the Labour party could increase pressure on Keir Starmer’s position as prime minister and would add to Labour party concerns over their sliding popularity ahead of the local elections in May."

"As a result, a defeat for Labour has the potential to trigger at least a temporary sell-off for the pound."

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