DBS Bank’s Philip Wee reviews recent FX volatility through the Pound, noting that GBP has been more resilient than EUR and CHF since Operation Epic Fury, helped by the UK’s lower exposure to the energy shock and higher policy rates. However, he highlights that GBP has recently underperformed as markets refocus on UK political risks and reassess Bank of England tightening expectations.
Pound resilience gives way to politics risk
“Following the start of Operation Epic Fury, GBP (-1.9%) was more resilient than the EUR (-2.2%) and CHF (-3.8%) in March.”
“In April, GBP (+2.9%) outperformed the CHF (+2.3%) and EUR(+1.5%).”
“However, GBP (-0.6%) underperformed the EUR (-0.2%) and CHF(-0.1%) in the first half of May.”
“Markets now see GBP facing a reality check as focus shifts from the US-Iran conflict to 10 Downing Street.”
“In the end, the GBP’s outlook remains tethered to the escalation or resolution of the Iran conflict, primarily because of how it dictates the USD’s strength.”
“UK politics drives GBP when it threatens fiscal solvency in a major way, such as Lizz Truss’s mini-budget crisis in 2022. Like it or not, GBP is still holding on to its post-Operation Epic Fury appreciation, in contrast to EUR and CHF. “
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/british-pound-volatility-focus-shifts-to-politics-dbs-202605141240
