Pedestrians and taxi cabs pass the Bank of England in London. The BoE’s Monetary Policy Committee is set to give a policy decision today, before the central bank publishes its quarterly inflation report two days later.
Bloomberg/London
The Conservative Party’s election victory handed the pound its biggest weekly gain versus the euro since February. That leaves investors free to turn their attention back to the UK monetary policy.
Sterling surged the most in 3 1/2 years against the single currency Friday and strengthened versus most of its 16 major peers as Prime Minister David Cameron’s majority ended concern that drawn-out talks would be needed to form a government. Gilts pared a weekly decline and measures of anticipated swings in the currency tumbled.
The Bank of England’s Monetary Policy Committee is set to give a policy decision today, before the central bank publishes its quarterly inflation report two days later.
“The inflation report is now the important event,” said Anthony O’Brien, a fixed-income strategist at Morgan Stanley in London. “People thought Conservative government means more austerity, so they’ll price in less action from the MPC.” The pound’s gains on Friday came after victory with an unexpected majority for the Conservatives, who focused their campaign on their economic credentials and were shown in surveys to be the most trusted party on managing Britain’s finances. Still, some analysts voiced concern that the party’s pledge of a referendum on Britain’s membership of the European Union may undermine investment and weaken the pound.
“The Conservative Party are perceived to be more market- friendly than a Labour government and that’s really at the core of the game,” said Sebastien Galy, a New-York based currency strategist at Societe Generale.
“Having said that, with a Conservative government, some people will reassess” their position in the long term on the increased risk of Britain exiting the EU, he said.
The pound strengthened 1.8% last week to 72.61 pence per euro in London Friday, the biggest advance since the week ending February 27. It rose 2.1% to $1.5461, and reached $1.5523 Friday, the highest level since February 26.
