Sterling presses higher, undaunted by UK election result
GBP/USD appears likely to challenge the 2024 high at 1.2894 struck on March 8, after rising to 1.2840 on Monday, as traders shrug off the UK election result and focus on monetary policy in the UK and United States.
If veteran socialist Jeremy Corbyn was still in charge of Labour, the party's victory would have stoked tax-and-spend policy expectations and weakened the pound. But Prime Minister Keir Starmer and finance minister Rachel Reeves are business-friendly, to the benefit of GBP.
UK short-term interest rate expectations, as expressed on LSEG's IRPR page, show little change in BoE policy expectations since the election. Rate futures priced a 60% chance for an August rate cut prior to Labour's victory, and still do.
For the balance of 2024, BoE rate expectations mirror Federal Reserve rate expectations, with both central banks banks expected to cut rates by September, and roughly two cuts priced in before year-end.
With UK rates seen slightly higher than Fed rates in 2025, see 0#SRA:, 0#SON3:, GBP/USD is likely to maintain its slight bid barring any data surprises to upset the current BoE-Fed policy stasis.
GBP/USD finds resistance at the June 12 high by 1.2860 ahead of the March 8 peak. A setback through 1.2727, meanwhile, should open the way for a test of the June 27 trend low by 1.2613.
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GBP Chart: https://tmsnrt.rs/3xZlx5T
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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