Citi Sees Near-Term Pressure on Sterling Ahead of Expected UK Political Developments

Citi expects EUR/GBP to remain supported in the near term and continues to view recent movements as broadly consistent with its longer-term outlook for sterling.

Market outlook

Expected market catalyst: Citi highlighted the anticipated appointment of Andy Burnham as UK Prime Minister after July 20 as a potential event that could influence sterling sentiment. The bank noted that current carry costs have limited short-term positioning ahead of greater political clarity.

Historical observations: According to Citi, previous UK prime minister transitions following Brexit were accompanied by periods of relative EUR/GBP strength. The bank said this pattern may reflect changing market expectations as investors reassess economic and policy prospects after a new government takes office.

Political uncertainty: Markets have responded positively to Burnham's stated commitment to maintaining fiscal discipline. However, Citi noted that uncertainty remains regarding future cabinet appointments, including whether Rachel Reeves will continue as Chancellor.

Citi's market outlook

Citi said it continues to see scope for EUR/GBP to strengthen toward the 0.8450–0.8500 area over time. The bank also noted that, based on its internal valuation framework, the currency pair currently appears undervalued relative to interest-rate differentials.

Market focus: Market participants are likely to monitor political developments in the UK after July 20 alongside any announcements regarding fiscal policy and cabinet appointments, as these factors could influence sterling sentiment in the near term.

Source: Citi. This article was generated with AI support and reviewed by an editor.