EUR/GBP: ING sees UK domestic factors bolstering upside potential

Political Uncertainty and Policy Concerns Weigh on the Pound

Francesco Pesole from ING highlights that recent political events in the UK, along with ongoing policy uncertainties, are putting pressure on the Pound and strengthening the case for a positive outlook on EUR/GBP. The Green Party's victory in a by-election, taking a seat traditionally held by Labour, is viewed as a setback for Prime Minister Keir Starmer. This outcome, combined with worries about fiscal management and expectations of a dovish stance from the Bank of England, continues to keep the Pound under scrutiny.

Political Shifts Add to Sterling's Challenges

The Pound experienced additional weakness following the Green Party's win in the Gorton and Denton by-election, a constituency in Manchester long considered a Labour bastion. Any developments that appear to undermine Prime Minister Starmer's authority have recently weighed on Sterling. The success of a more left-leaning party in this contest could also raise the likelihood of a shift towards a more progressive leadership if Starmer were to step down prematurely.

According to Pesole, the outlook for EUR/GBP remains optimistic due to several factors affecting the Pound, including heightened political uncertainty, some fiscal risks ahead of the upcoming budget, and expectations that the Bank of England may maintain a dovish policy stance.

He believes that the environment remains supportive for EUR/GBP to move above the 0.880 level, which is where their short-term projections currently place the pair.