Keir Starmer’s center-left Labour Party won a sizable majority in the UK general election, providing much-needed comfort to the global currency market after years of market turbulence under the Conservatives.
This year, the British pound held its ground against the haven currency and kept most of its gains against the naira.
Prime Minister Rishi Sunak of the Conservative Party has admitted defeat, even though there were still a lot of election results to be revealed. Labour had secured over 326 of the 650 seats in parliament, more than 410 of which were predicted by an exit poll.
Regarding Sir Keir Starmer’s suggested spending and tax policies—and most significantly, his strategy for expanding the economy—further information is still required.
In both the official and black markets, the value of the Nigerian Naira was depreciating in relation to the British pound and other major currencies, partially because of growing demand.
Even if conditions in the official market had improved, the British pound sterling sold for N1,905 against the naira on the illicit market.
This week, the pound has gained 1% vs the US dollar, which is the strongest weekly performance since mid-May. This year, the pound gained more than 100 basis points against the dollar, outperforming other major currencies.
During the London trading session, the last known price of sterling was $1.276, which is just less than the three-week high of $1.27765 that was attained on Wednesday.
Labour inherits economic stability
Because markets think Labour will keep the UK’s budgetary stability, the British pound and UK bond yields displayed a strong feeling of stability during the UK election campaign.
Now, the focus will quickly shift to Starmer’s first 100 days in office and his economic plan, which seeks to boost GDP and enhance public services at the same time.
If Keir Starmer follows through on his promises of budgetary discipline and “stability,” investors will be closely watching him. Interest rates will drop from 5.25% by the Bank of England as inflation has stabilized at 2%.
The market believes that the United Kingdom’s GDP will rise at a faster rate of 1.2% this year and 1.5% in 2025 and 2026. This is explained by our forecasts that inflation will fall somewhat further and that the Bank will cut interest rates to 3% in 2026.
Additionally, at the first fiscal event after the election (probably in September), the Budget Responsibility will give Labour fiscal headroom of around £16 billion (0.6% of GDP), up from £8.9 billion (0.3%) in the March budget.
Payroll for US jobs is visible
When American traders return from their July 4th holiday later today, currency traders’ focus will be firmly on non-farm payrolls.
The data is expected to show a rise of 190,000 jobs in June, according to market predictions, after a gain of 272,000 in May.
A number of economic indicators suggesting that the U.S. economy is slowing down have increased expectations that the data-sensitive Federal Reserve may soon cut interest rates. Traders are pricing in a 73% possibility of a decline in September, according to the CME FedWatch tool.
Markets anticipate two rate cuts this year, even though the Fed only forecast one for 2024 last month. A lot will rely on recently disclosed information.
