Sterling rose against the dollar and euro on Wednesday as investors were relieved that British Prime Minister Keir Starmer’s position was now more secure than at the beginning of the week.
The pound rose 0.5% against the dollar to $1.3708. Much of this was due to the dollar’s overall depreciation in the face of weak US employment data, but the UK currency also held firm against the euro.
The common currency fell 0.26% to 86.97p, down from Monday’s peak of 87.41p, when Mr Starmer’s position was under serious threat.
Mr Starmer on Tuesday vowed never to step away from his job to change Britain, rebuffing challenges to his authority by the Scottish Labor leader and other party figures who called for him to resign.
Investors also appreciated the Bank of England’s unexpectedly narrow decision last week to keep interest rates on hold, prompting traders to raise bets on a March rate cut.
The euro had fallen to 86.13p last week before the central bank’s decision.
MUFG senior currency analyst Lee Hardman said: “Much of the EUR/GBP rally is justified by the dovish Bank of England reinforcing our view that it will be more aggressive in cutting interest rates this year.”
“And while new political uncertainty is never good for the pound, Starmer’s position as prime minister currently appears to be in a more secure position, at least until local elections[in May].”
“If he were to be sacked, the natural reaction would be to sell the pound and gilt.”
Once traders review the US payroll data released later in the day, all eyes will turn to UK GDP data for January and Q4 2025, released on Thursday.
Stronger data could cause the market to reassess its bets on a March rate cut. Traders currently believe there is about a 60% chance of a 25 basis point rate cut.
(Reporting by Alan John; Editing by Anil D’Silva)
