- Pound (GBP) is falling for a second straight day
- Labour lost an election in a stronghold area
- Euro (EUR) is ahead of German inflation data
- ECB is not expected to move on rates this year
The Pound-Euro (GBP/EUR) exchange rate is falling for a second day. The pair fell 0.45% in the previous session, settling on Friday at €1.1428. It traded between €1.1414 and €1.1486. At 11:30 UTC on Friday, GBP/EUR trades 0.08% lower at €1.1421.
The pound is falling on Friday amid a risk of mood in the markets, which has seen investors move away from slightly more volatile currencies such as the pound, and after the Labour Party lost its key election in a stronghold in northern England.
The UK Green Party scored a landslide victory in an area of Manchester that the Labour Party had dominated for decades, piling pressure on Prime Minister Keir Starmer to prove he should keep his job.
The pound can be highly sensitive to national politics and questions over PM Starmer’s future could limit the upside.
The Polymarket prediction market shows customers are assigning a 53% chance that Starmer will step down by June, up from 24% since the start of February.
The euro is edging against the pound on the US dollar, as attention turns to German inflation data.
German CPI is expected to rise 0.5% month-on-month in February, up from 0.1% in January. On an annual basis, inflation is expected to ease to 2%, down from 2.1% in January.
Data aren’t expected to have much impact on the outlook for interest rates. This week, ECB President Christine Lagarde reiterated that inflation is expected to remain around the 2% target over the medium term. The ECB is not expected to cut interest rates again this year.
President Christine Lagarde also reiterated that her baseline scenario was to remain in office until 2027 to finish her term. This comes after speculation that she was considering leaving this year.