The pound came under renewed pressure after the Green Party secured a win in a by-election for the Gorton and Denton constituency in Manchester, a seat formerly regarded as a Labour stronghold. Market participants have factored the result into sterling pricing amid concerns that the outcome could weaken Prime Minister Keir Starmer's standing.
Observers note that the success of the Green Party - described as more left-wing - may increase the perceived chance that a successor with further left-leaning policies could emerge should Starmer depart office prematurely. That political dynamic is being viewed by markets as an additional element of uncertainty weighing on the currency.
Currency moves were modest in early trading: the euro was quoted at 0.8752 against the pound, up 0.03%, while sterling traded at 1.3491 against the U.S. dollar, a 0.04% gain, as of 09:34 GMT on Friday.
ING has reiterated a bullish view on EUR/GBP, highlighting concentration risks affecting sterling. The bank pointed to political uncertainty, fiscal concerns ahead of next week’s budget announcement, and dovish risks to Bank of England pricing as factors supporting a stronger euro against the pound. ING also said conditions remain in place for EUR/GBP to move past 0.880, where the pair currently sits in their short-term estimates.
Market sensitivity to political developments and fiscal policy ahead of the budget has underpinned trading in the currency complex. Analysts and traders are balancing the by-election signal with near-term macro drivers as they reassess positioning in both crossrates and dollar pairs.
While the moves reported were relatively small in percentage terms, the narrative reinforced by the by-election outcome has added to the list of issues investors are monitoring for the pound - from political stability to fiscal planning and central bank expectations.
Contextual note - The immediate market reaction reflects how political events can influence currency sentiment when combined with impending fiscal announcements and central bank pricing considerations. The precise trajectory of EUR/GBP and sterling more broadly will depend on how those risks evolve in the days ahead.