ING: The British Pound Shows Limited Reaction to Leadership Change, Political Risk Premium Not Evident

(1) Francesco Pesole from ING Group stated in a report that the pound's reaction to prospects of changes in UK leadership has been relatively limited. "Our short-term fair value model shows that the euro versus the pound is not overvalued, indicating no political risk premium." (2) He said that the model’s results suggest the market is relaxed about potential leadership changes, but it also means that if fiscal concerns resurface, the pound will face greater downside risk. According to reports, UK Prime Minister Keir Starmer is expected to announce his resignation on Monday, with Andy Burnham being a hot contender to succeed him. (3) The limited market reaction reflects that Andy Burnham has adopted a more market-friendly approach in his budget plans. Pesole said the next critical test will be the choice of Chancellor of the Exchequer. EUR/GBP rose 0.1% to 0.8675