ING said Andy Burnham\u2019s by-election win has strengthened expectations that he could become UK Prime Minister, with betting markets pricing a handover by the end of the summer. The scenario set out includes potential cabinet resignations intended to accelerate a transition from Keir Starmer, although a longer leadership contest remains an alternative.<\/p>\n
The pound has shown no political risk premium over the past month, a pricing pattern that implies markets are comfortable that Burnham\u2019s fiscal plans would not unsettle the gilt market. Even so, ING framed fiscal headlines as a potential upside risk to its generally bullish EUR\/GBP view, arguing that GBP and gilts have had a low tolerance for negative budget-related news since 2022. The bank\u2019s central case rests on its expectation of no further Bank of England hikes, reinforced by what it described as an uneventful meeting yesterday.<\/p>\n
We see Andy Burnham’s decisive by-election win as paving the way for a leadership transition by late summer. Betting markets are reflecting this, with current odds implying an over 80% chance of a new Prime Minister before the autumn. This high conviction suggests we should position for a period of political change.<\/p>\n
Right now, the pound shows little sign of stress, with implied volatility on three-month options holding near a one-year low of 6.2%. This tells us the market believes a Burnham government will not pursue disruptive fiscal policies. We feel this confidence could be misplaced, presenting an opportunity for traders.<\/p>\n
Our main view is to favor the euro against the pound, anticipating a move towards 0.8800 in EUR\/GBP. The Bank of England is firmly on hold, reinforced by the latest CPI inflation figure of 2.1% and sluggish Q1 GDP growth of just 0.1%. This policy stance leaves sterling vulnerable, especially as political headlines emerge.<\/p>\n
The memory of the gilt market crisis in autumn 2022 means any unexpected fiscal announcements could cause a sharp reaction. We are therefore buying cheap, out-of-the-money EUR\/GBP call options with August and September expiries. This strategy offers a low-cost way to profit from a sudden sterling drop if political risk is repriced into the market.<\/p>\n","protected":false},"excerpt":{"rendered":"
ING says Burnham\u2019s by-election win boosts PM odds; pound calm, but fiscal headlines could hit sterling.<\/p>\n","protected":false},"author":103,"featured_media":17036,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[86,56,77,58,97],"class_list":["post-55438","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-eur","tag-euro","tag-gbp","tag-pound","tag-volatility"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/55438","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=55438"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/55438\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17036"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=55438"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=55438"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=55438"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}