Investors eye pound amid Labour victory expectations and European uncertainty

Investors are revising strategies to capitalise on the potential strengthening of the pound (GBP) in the wake of a Labour victory in the UK election on July 4 and increasing political uncertainty in Europe, reports the CEO of one of the world’s largest independent financial advisory and asset management organisations.

The analysis from Nigel Green of deVere Group comes as a Bloomberg survey on Monday suggests that a Labour win next month would be good news for the pound. 

It also follows increasing uncertainties due to a far-right surge in the EU Parliamentary elections. The far-right parties gained notable support despite the incumbent leader, Ursula von der Leyen, claiming a victory. 

The results have triggered Emmanuel Macron to call for new parliamentary elections in France.

He says: “A Labour victory, with a large majority, after 14 years of Conservative rule, is already priced-in by the markets.

“The expectation that a Labour-led government will create a more stable political environment, be able to make decisive policy moves due to the majority, and improve relations with Europe is boosting investor confidence in the UK economy.

“The increasing political volatility in Europe is also likely to be good for the pound. Indeed, the euro dropped to its lowest level against the pound in 22 months after Macron called for elections in France following a humiliating defeat in Europe.”

Nigel Green continues: “We’re noticing that global investors are wanting to make moves to seize what they perceive to be a new era of opportunity for UK assets, including the pound.

“We’re seeing investors taking long positions on sterling in the forex market, anticipating that the pound will appreciate.

“Also, a renewed interest in considering UK equities and ETFs that benefit from a strong pound. 

“Sectors like financial services, consumer goods, and tech are likely to see enhanced performance due to increased investor confidence.”

Investing in gilts is increasingly attractive, too, as they offer a safe haven with potentially favourable yields. “If the pound strengthens, the value of these bonds is likely to increase for foreign investors.”

At the end of May sterling hit a two-year high against the euro as financial markets bet that the Bank of England will be forced to keep interest rates at their current level for a little bit longer, for fear of seeming to be political ahead of polling day.

The deVere CEO concludes: “Domestic and international investors are currently seeking to leverage the expected benefits on UK assets of a more stable political and economic environment in the UK, and the opposite of that in Europe.

“We expect this trend to continue as the race for Downing Street gathers pace and the political turbulence in Europe plays out.

“As with all investments, it’s crucial to maintain a balanced approach and be prepared for potential market volatility.”

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