Insights 
VT 
Impact of Political Issues
EUR/GBP is trading above 0.88, affected by unexpectedly soft unemployment data from the UK. This is compounded by doubts about the Labour Force Survey’s data quality, which had been temporarily suspended in 2023.
Political issues also press on GBP, with potential leadership challenges facing PM Starmer. His poor approval ratings create uncertainty about Chancellor Rachel Reeves’ future, adding risk to UK markets.
Current fiscal and monetary policies contribute to the pound’s weakness. Political disruptions may push EUR/GBP to the 0.8870/8900 range, potentially hitting year highs.
FXStreet Insights Team provides these observations, collating insights from both commercial and independent analysts. They note that additional market dynamics, such as US activities, also frame the current economic environment.
Upcoming Budget and Market Implications
The pound is under pressure following recent soft unemployment figures, and we see further downside in the coming weeks. The latest data from the Office for National Statistics showed the unemployment rate ticked up to 4.5% in October, confirming the weak trend seen in September’s numbers. These figures are adding to the uncertainty we’ve had since the Labour Force Survey was briefly suspended back in 2023 to fix its data quality.
Political risks are now a major factor for sterling ahead of the budget later this month. Prime Minister Starmer is facing internal pressure due to low approval ratings, with a recent YouGov poll putting his net approval at -25. Any challenge to his leadership could also create uncertainty around the Chancellor, adding a risk premium to UK assets that we must price in.
This political noise is happening alongside a difficult policy mix that is negative for the currency. We expect a tighter budget on November 26th to control a debt-to-GDP ratio still hovering around 98%, while the Bank of England is leaning dovish. The minutes from the last MPC meeting showed two members already voted for a rate cut, signaling that looser monetary policy is on the horizon.
For derivative traders, this points towards positioning for a weaker pound against the euro. We see the potential for EUR/GBP to push towards the 0.8870/0.8900 area, a level that acted as significant resistance in late 2023. Buying EUR/GBP call options with expirations in late December could be an effective way to play this expected move higher.
We should watch the upcoming budget closely for any surprises that could alter this outlook. A less austere fiscal plan or any unexpectedly hawkish commentary from Bank of England officials would be a signal to reconsider bearish pound positions. Until then, the path of least resistance for sterling appears to be lower.
