Rabobank’s Senior FX Strategist Jane Foley highlights that the Pound has underperformed in G10 in May, linking weakness to UK political uncertainty following local elections and ongoing questions over Labour leadership. Foley expects GBP to retain a political risk premium, see EUR/GBP drifting higher towards 0.89 over 9–12 months, and anticipate further GBP/USD dips towards 1.33 as safe-haven Dollar demand persists.

UK politics keeps pressure on Pound

"Most commentators would agree that the poor performance of the pound in May can be linked to political uncertainty sparked by the local elections at the start of the month."

"This suggests that GBP may continue to carry a political penalty for some time."

"We maintain the view that EUR/GBP will edge towards the 0.89 level on a 9-to-12-month view."

"We continue to expect EUR/GBP to be biased higher medium-term which any honeymoon period following any Labour leadership challenge to be quickly overruled by debt issuance concerns."

"We see scope for further dips in cable back to the GBP/USD 1.33 level on a 1-month view with UK political concerns keeping this level in view for much of H2."

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