Impact of Political Issues

EUR/GBP is trading above 0.88 due to softer than expected unemployment data from the UK. Concerns also arise about the Labour Force Survey’s data quality, which was briefly paused in 2023. Political factors create additional pressure on GBP. PM Starmer faces leadership challenges, with his low approval ratings raising questions about the future of Chancellor Rachel Reeves. This uncertainty is contributing risk to UK markets. Current fiscal and monetary policies also weaken the pound. Political instability may push EUR/GBP toward the 0.8870/0.8900 range, potentially reaching yearly highs. The FXStreet Insights Team provided these observations, gathering insights from both commercial and independent analysts. They point out that other market factors, like US actions, shape the current economic landscape.

Upcoming Budget and Market Implications

The pound is facing pressure after recent soft unemployment figures, and we expect further declines in the upcoming weeks. The latest data from the Office for National Statistics indicates the unemployment rate rose to 4.5% in October, confirming the weak trend from September. This uncertainty lingers since the Labour Force Survey was temporarily halted in 2023 to improve data quality. Political risks are critical for the pound as the budget approaches later this month. Prime Minister Starmer is under internal pressure due to low approval ratings, with a recent YouGov poll showing a net approval of -25. Any threat to his leadership could create uncertainty around the Chancellor, increasing the risk premium on UK assets. This political turmoil coincides with challenging policies that negatively impact the currency. We anticipate a tighter budget on November 26th to control a debt-to-GDP ratio near 98%, while the Bank of England appears more cautious. Minutes from the last MPC meeting revealed that two members voted for a rate cut, indicating a shift towards looser monetary policy. For derivative traders, this suggests they should prepare for a weaker pound against the euro. We see EUR/GBP potentially moving towards the 0.8870/0.8900 range, a level that proved significant resistance in late 2023. Purchasing EUR/GBP call options with expirations in late December may be a smart way to capitalize on this expected upward movement. We should closely monitor the upcoming budget for any surprises that might change this outlook. A less strict fiscal plan or unexpectedly hawkish remarks from Bank of England officials could prompt a reassessment of bearish pound positions. Until then, the most likely path for sterling appears to be downward. Create your live VT Markets account and start trading now.

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