Barclays' foreign exchange analysts expect the British pound to hold its ground in the wake of Prime Minister Starmer's resignation announcement. The bank's view reflects sterling's performance across the second quarter, when it showed resilience against domestic political developments and fiscal risks.
In its assessment, Barclays highlights a key pillar supporting the currency - continued interest-rate support. The bank notes that the Monetary Policy Committee has shown reluctance to ease policy further in the near term, and that this stance should provide an extended period of support for the pound even though some recent economic indicators have weakened.
On the cross-rate front, Barclays retains a flat forecast for the euro-pound exchange rate at approximately 0.86. The bank describes that level as sitting in the middle of the trading range that was established after the EU referendum, and it signals no immediate expectation of strong directional moves away from that midpoint.
Barclays also outlines the balance of risks around its forecast. On the negative side, the bank points to fiscal and political factors as potential downward pressures on sterling. Conversely, it sees potential upside - referred to as EU reconvergence - that could push the euro and pound closer together in value over time. These upside and downside risks are cited without further specification in the bank's note.
While Barclays' outlook emphasizes stability, the bank explicitly references recent softening in economic data. That weakening does not, in their view, overturn the significance of ongoing monetary support from the Monetary Policy Committee, but it is a factor the analysts record as part of the current backdrop.
For market participants focused on currency moves, Barclays' position implies an expectation of limited near-term volatility for EUR/GBP, with the bank anchoring its central estimate at 0.86 and flagging both political/fiscal downside risks and the possibility of EU reconvergence as offsetting forces.