Sterling eases against U.S. dollar, gains on euro as UK political outlook steadies

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Sterling eases as UK steadies

Highlights

Sterling declines 0.2% to $1.3233 against the U.S. dollar but strengthens to 86.10 pence per euro as UK political uncertainty recedes.
UK Q1 GDP shows 0.6% growth, unchanged from the initial estimate, while markets digest Andy Burnham's pledges for regional devolution and long-term growth.
Weaker inflation in France and German states pressures the euro, reducing expectations for a second ECB rate hike this year.

Political signals and market positioning

As reported by Reuters, trading in sterling remains muted as investors position for a likely Andy Burnham premiership in Britain and weigh whether his agenda could alter the fiscal outlook.

The pound is last down 0.2% at $1.3233 against the U.S. dollar, ending a three-day winning streak. Against the euro, sterling is firmer, with the single currency down a fraction at 86.10 pence, moving back toward last week's low of 86.03 pence, its weakest level since August 2025.

Britain's economy grows 0.6% in the first quarter, unchanged from the initial estimate, but the data does little to shift market sentiment. Investors instead continue to digest Burnham's speech on Monday, in which the prime minister-in-waiting pledges radical political change through greater regional devolution and a 10-year push for what he calls good growth.

Markets are initially wary of a Burnham premiership because of expectations that he could pursue higher borrowing and spending, although reaction to his latest remarks is muted and marginally supportive for sterling. Societe Generale chief FX strategist Kit Juckes says Burnham's focus on devolution is not seen by markets as a dangerous topic, though he notes the policy could prove expensive depending on how it develops.

Euro zone inflation and central bank focus

Sterling also draws support against the euro from softer inflation readings in France and several German states, a trend that could reduce the likelihood of the European Central Bank delivering a second rate hike this year.

Markets may get clearer direction on Wednesday when ECB President Christine Lagarde appears on a panel alongside Bank of England Governor Andrew Bailey and Federal Reserve chief Kevin Warsh. The event is likely to offer investors further signals on the rate outlook across Europe, the UK and the U.S.

In our earlier article on Andy Burnham’s devolution agenda, we outlined how he pitched greater fiscal decentralisation as a remedy for the UK’s economic and political strains, highlighting how much local spending is still controlled by central government. We also noted that, for investors, the bigger credibility test sits in whether a Burnham-led Labour approach can pair decentralisation with tougher choices on welfare and overall public finance discipline.

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