ING: The GBP - FJElite
Andy Burnham is set to succeed Keir Starmer as the UK Prime Minister later today. Sterling has been doing quite well recently on the view that Burnham will select a more fiscally responsible chancellor in the form of Shabana Mahmood - an announcement that will probably emerge today.
However, we think a larger part of sterling's strength owes to stale short sterling positioning, and we suspect some large M&A flows going through, where cheaper valuations have made UK equities an attractive proposition this year.
While we do not rule out a little further sterling strength during the Burnham honeymoon period, the UK's tight fiscal situation suggests a new cabinet will have to turn to tax increases it wants to build out its plans to improve areas such as social care.
EUR/GBP has support at 0.8470, and 0.8400 might be the best-case for sterling this summer, but we would not chase the EUR/GBP move lower.