Following the Labour Party’s substantial election win, the Pound Sterling has shown resilience, with experts remaining optimistic about its future performance. The Pound to Euro exchange rate held steady at 1.18, with the market reaction to the 10 PM exit poll indicating that the result was largely anticipated based on prior polling data.
Foreign exchange strategist Roberto Mialich from UniCredit observed that Sterling remained robust following the UK general election, in which Labour secured a significant majority, aligning with the expectations set by consistent polling results. As of the latest counts, Labour has won 409 seats, gaining 213, while the Conservatives lost 249 seats, now holding 199. The Liberal Democrats increased their representation by 60 seats to 71, SNP dropped 36 seats to 8, and Reform secured 4 seats.
Constructive Outlook for Pound
Foreign exchange analysts maintain a generally positive outlook for the Pound, predicting further gains in light of an improving economic landscape and the potential for stronger trade ties with the EU under the new Labour government. Barclays analysts noted Labour’s openness to closer relations with the EU, suggesting there could be a gradual reduction in the Brexit-related risk premium. Their updated forecasts project significant gains for the Pound against the Euro, expecting the EUR/GBP exchange rate to reach 0.80 in the coming quarters. Additionally, they identified political risk in France as a potential positive factor for the Pound.
Impact of Labour’s Policy Agenda
In the short term, market focus will shift to Labour’s initial policy steps. Joseph Capurso, an FX strategist at Commonwealth Bank, emphasized the importance of Labour’s decisions regarding its electoral promises and their economic implications. The incoming government’s policy agenda will be detailed in the King’s speech to Parliament on July 17, which will be closely watched by markets for its potential impact on the Pound and other UK financial assets.
French Election Adds Uncertainty
Looking ahead, the upcoming election in France is proving more significant for the Pound-Euro exchange rate. The second-round vote on Sunday is expected to solidify an uncertain political and fiscal outlook, with no party predicted to hold a majority in the National Assembly, leading to a ‘hung parliament.’ Crédit Agricole’s research highlighted the uncertainty this scenario brings, with FX markets typically adverse to such unpredictability. Mialich from UniCredit suggested that while a hung-parliament scenario might initially be seen as more positive than an outright majority for the RN, the long-term effect could still weigh on the Euro.
Conclusion
Despite the Labour Party’s commanding election victory, the Pound Sterling has remained stable, reflecting the market’s anticipation of this outcome. Analysts continue to hold a positive outlook on the Pound, citing potential economic improvements and stronger EU trade relations under Labour’s governance. Attention now turns to Labour’s policy implementation and the forthcoming French election, both of which will play crucial roles in shaping the Pound’s trajectory in the near future.
