Pound Sterling Tipped to Benefit on a Big Labour Local Election Win by Crédit Agricole
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A big Labour win in today’s local elections could boost Pound Sterling as it could hasten a change of guard at Westminster, say analysts at Crédit Agricole.
UK politics have become a minor concern for the British Pound over recent months following Liz Truss’s ouster and the broader convergence in Labour and Conservative policy stances during the Keir Starmer years.
But, there could yet be something in the outcome of today’s council elections for GBP ‘bulls’, according to a note from FX analysts at Crédit Agricole.
“Turning to the impact on the GBP, we note that UK politics have not been very high on FX investors’ radar screens lately. That being said, most clients seem to believe that a potential change of guard in Westminster could be good for the currency,” says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.
He explains this is mainly because “a Labour government is expected to usher in a period of political stability – a welcome change following the tumultuous years of Tory rule.”
Crédit Agricole says feedback from its recent client meetings has suggested that FX investors approach today’s local elections in the UK as an important opinion poll ahead of the general election expected to take place later this year.
“According to some FX investors, should the outcome of today’s vote signal that support for the Conservatives has slipped more than expected, this could increase the chances of an early election over the summer,” says Marinov.
The Conservatives are likely to be trounced in the council elections, reflecting the significant drop in support for the ruling party in the polls.
Why would an imminent election be good for the Pound? Marinov explains a Labour government would be expected to improve the relationship with the EU further, albeit within the limits of the post-Brexit world.
“With that in mind, we think that a disappointing outcome for the Conservatives today could cheer up the GBP bulls as it could bring a general election closer. At the same time, a better-than-expected showing by the Tory party could be seen as prolonging the current period of political uncertainty and thus be less supportive for the currency,” says Marinov.
With voting underway, FX markets are becalmed with the Pound to Euro treading its familiar ranges around the 1.17 level while the Pound to Dollar exchange rate defends 1.25 following overnight gains linked to the Federal Reserve’s May policy update.
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