The pound rose against the dollar and euro on Wednesday, ahead of key U.S. economic data, as market participants ponder the impact of a potential Labor Party victory in next month’s general election.
The UK data calendar is light this week, apart from Thursday’s release from the Bank of England’s (BoE) Decision Maker Panel on inflation expectations.
Analysts at ING recently said they expect one-year inflation expectations to fall and remind markets that they are too conservative in expecting fewer than two BoE rate cuts this year.
ING expects the BoE to ease policy three times in 2024.
Investors are currently pricing in more than a 50% chance of BoE rate cuts of 25 basis points by September, while pricing in 35 basis points by the end of the year, meaning one cut and a 40% chance of a second move in 2024.
US employment data later in the week will dominate the macro calendar, following US services data on Wednesday.
The pound was up 0.1% at $1.2776. The day before it had reached $1.2817, the highest 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 is set to win by a wider margin than in 1997 under former Prime Minister Tony Blair, pollster YouGov said on Monday.
“Labour’s focus will likely start with ambitious supply-side policies, from planning reform to boosting employment and education,” said Sanjay Raja, a senior economist at Deutsche Bank, arguing that he expects a government Labor pays spending increases with tax increases.
“Deeper integration with Europe could also increase potential growth, allowing for more spending later in the parliamentary period,” he added.
According to a Nomura survey, “many customers think Labor will pursue a closer relationship with the EU; almost 90% of customers think this 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 ongoing general election,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.
Keir Starmer, a 61-year-old former lawyer, has brought Labour’s politics back to the center after a period of electorally unsuccessful left-wing leadership.
