Sterling rose against the dollar and euro on Wednesday ahead of key US economic data, as market participants mull the impact of a potential Labor Party victory in next month’s general election.
The UK data schedule is light this week, except for Thursday’s release of the Bank of England’s dashboard on inflation expectations.
Analysts at ING recently said they expect one-year inflation expectations to have fallen, reminding markets that they are being too conservative in pricing in less than two BoE rate cuts this year.
ING expects the BoE to ease policy three times in 2024.
Currently, investors are pricing in more than 50% the possibility of the BoE cutting rates by 25 basis points between now and September, while discounting 35 basis points between now and the end of the year, which means a cut and a 40 % chance of a second move in 2024.
The week’s US employment data will dominate the macroeconomic calendar, following Wednesday’s US services data.
The pound was up 0.1% at $1.2776. The day before it reached $1.2817, its highest level since March 14.
On 22 May, Prime Minister Sunak announced that the next UK general election will take place on 4 July.
Britain’s main opposition party would win by a larger margin than in 1997, under former Prime Minister Tony Blair, opinion polling company YouGov said on Monday.
“Labor’s approach will likely start with ambitious supply-side policies, from planning reform to boosting jobs and education,” said Sanjay Raja, senior economist at Deutsche Bank, arguing that he expects a Labor government to pay the bill. Expense increases with tax increases.
“Greater integration with Europe could also boost potential growth, allowing for greater spending later in the parliamentary term,” he added.
According to a Nomura client survey, “many clients believe Labor will pursue closer relations with the EU; almost 90% of clients think it is likely or very likely.”
The euro fell 0.1% to 85.11 pence per pound.
“The pound has continued to comfortably outperform the euro over the past month as markets view a Labor majority as perhaps the most market-friendly outcome of the pending general election,” said Matthew Ryan, head of market strategy at the firm. of global financial services Ebury.
Keir Starmer, a 61-year-old former lawyer, has returned Labor politics to the center after a period of left-wing leadership without electoral success.
