Monthly Wrap: GBP – Pound fluctuates on mixed data, Labour landslide victory

Key takeaways: 

– Uneven UK data infuses volatility into the pound 

– Sterling supported by Labour landslide 

– GBP monthly lows: €1.17, $1.26, AU$1.89, NZ$2.06, C$1.72 

– GBP monthly highs: €1.18, $1.28, AU$1.93, NZ$2.09, C$1.75 

Trade in the pound was a little erratic over the past month, with GBP exchange rates striking new multi-month highs but then struggling to sustain these gains. 

This volatility can be primarily attributed to some mixed UK economic releases and a sense of caution ahead of the UK general election. 

In terms of data, Sterling sentiment was undermined by a rise in UK unemployment in April and a cooling of domestic inflation in May. 

Both releases stoked bets that the Bank of England (BoE) would begin cutting interest rates in August. 

Bets for an August cut were then reinforced following the BoE’s June policy meeting. While the BoE kept interest rates on hold, the minutes from the meeting suggested the decision was ‘finely balanced’. 

The focus for GBP investors then shifted to the UK general election as we transitioned from June into July. While markets had already priced in a Labour victory, the optimism following the party’s landslide helped the pound to carve out some modest gains. 

Looking ahead, Labour’s first moves in office are likely to be closely watched by GBP investors in the coming weeks. 

Whether the pound can maintain a positive trajectory will depend on the government’s policy priorities and whether it can get markets on board with its plans to boost growth. 

However, Sterling’s upside potential may also be tested by a renewed focus on the BoE.  

After cancelling all public appearances in the run-up to the UK election, we can expect renewed engagement from the bank’s policymakers. Any signals the BoE is likely to pursue an August rate cut could soften GBP exchange rates.