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ING’s Chris Turner notes Sterling is softening after UK local elections, as Labour’s losses fuel talk of a leadership contest and a leftward policy shift. He highlights the risk of developments around Manchester Mayor Andy Burnham re-entering parliament. Turner says markets will focus on Prime Minister Keir Starmer’s policy speech and expects EUR/GBP to revisit the overnight high at 0.8675.
Sterling pressured by Labour uncertainty
“Sterling is softening a little as markets digest the fall-out from local UK elections held late last week. While Labour losses were not quite as bad as feared, they have failed to quell speculation over a Labour leadership contest and a clear leftward drift in government policy.”
“Manchester Mayor Andy Burnham remains waiting in the wings and the markets will react to any news such as Burnham resigning as mayor or a sitting Labour MP resigning to make way for Burnham’s return to parliament.”
“The key focus this morning will be a policy speech from PM Keir Starmer on how he plans to address Labour’s falling popularity and take the party into the next election. The wild card here is how far he intends to embrace a return to Europe, whether that be rejoining the customs union or more controversially, the single market. “
“It will be tough for Starmer to win over his critics, and we suspect EUR/GBP finds its way back to the overnight high at 0.8675.”
