Pound Steady as Investors Await Andy Burnham’s Speech on UK Economic Plan
Market Reactions and Investor Sentiment Amid Political Uncertainty
By Amanda Cooper
Pound Performance and Political Developments
LONDON, June 29 (Reuters) - The pound, set for its largest monthly drop since March, held steady on Monday ahead of a much-anticipated speech from Andy Burnham, Britain's likely next prime minister, which investors will scour for clues on his thinking on the economy.
Burnham, who returned to Westminster this month after winning a parliamentary seat, is currently the only declared candidate to take over from Prime Minister Keir Starmer, and could be installed in Downing Street within weeks.
The pound has lost 1.7% this month against the dollar, which has surged as an interim peace deal in the Iran war and a reassessment of the U.S. rate outlook have lifted the U.S. currency to its highest in around a year. Sterling was last up 0.1% at $1.322, around its weakest in seven months, against a backdrop of political turmoil at home, including Starmer's resignation a week ago.
Concerns Over Fiscal Policy and Gilt Markets
Gilt investors in particular are concerned about how Burnham plans to fire up UK growth. The Labour lawmaker is known to favour more expansionary fiscal policies, something the UK can ill afford, given the limited headroom for extra borrowing or spending.
Investor Positioning and Market Risks
Investors Build Up Bet Against Sterling
Few expect a repeat of former Prime Minister Liz Truss' attempt to boost the economy with billions of pounds in unfunded tax cuts that destabilised the gilt market so badly the Bank of England had to step in to stabilise it. Who Burnham chooses as finance minister could likely be key to keeping UK borrowing rates in check, analysts said.
Expert Commentary on Fiscal Prudence
"Gilt yields' behaviour since the pandemic, raising borrowing costs by nearly double in a handful of years and our continued deficit spending suggest that the last thing needed is a big round of handouts," Caxton strategist David Stritch said.
"Given what happened last time an ambitious, but unfunded, departure from economic orthodoxy was announced by a UK government, it ended in catastrophe. Burnham would be very wise to avoid the same pitfall," he said.
Political Uncertainty and Market Focus
Starmer announced last week he would step down, just two years after winning a huge parliamentary majority for Labour. UK markets offered little reaction, given Starmer had been under pressure for some time to resign, leaving the focus on who Burnham chooses as finance minister.
The political uncertainty has not been lost on investors, who have built up the biggest bet against sterling since June 2015.
They hold a short position in the pound worth $8.72 billion, according to weekly data from the Commodity Futures Trading Commission, the largest since May 2015's record $9.567 billion.
Upcoming Economic Events and Global Context
This week also brings with it several key risk events for markets, including the monthly U.S. employment report and a speech on Wednesday from new Federal Reserve Chair Kevin Warsh, who joins other global central bankers at the European Central Bank's annual gathering in the Portuguese town of Sintra.
(Reporting by Amanda Cooper; Editing by Aidan Lewis)
