Investors have supported the pound following last week’s Labour Party election victory. Coupled with relatively positive U.S. Payroll data on Friday, GBP has gained 0.5% against the dollar, approaching the 1.2894 high from March 8, 2024.
The British pound has experienced a seven-day upward trend against the dollar, making it the best-performing currency against the U.S. dollar this year.
While the change of government in the UK has brought economic optimism, the possibility of a hung parliament in France has undermined the EUR/GBP. Sunday’s French election has dampened investor sentiment as the country seems to be heading towards a political deadlock.
Market watchers will closely analyze the inaugural speech of Labour’s Finance Minister, Rachel Reeves. Previews released by her Treasury department hint at the need to make tough decisions to drive economic growth, including rapid changes to unlock investment.
Monetary policy is uncertain for the pound, but with around a 63% chance of a rate reduction factored into pricing, a move on August 1 might lead to a limited reaction. Additionally, with U.S. rate cuts also in consideration, the pound is likely to rally again or at least enter a consolidation phase against the dollar.
BoE Monetary Policy Committee member Jonathan Haskel will deliver a speech later on Monday on inflation, which will also be closely examined.
