Forex News

• Andy Burnham says he wants to lead a pro-business Labour Party.
• The new Labour leader promises a cabinet that reflects every wing of the party.
• Burnham argues that stronger public control over the cost of essentials is needed to keep inflation under control.

UK Labour leader Andy Burnham said on Friday that he intends to lead a pro-business Labour Party, arguing that his experience working with businesses as Mayor of Greater Manchester will serve as the model for his future government, according to Reuters.

In his first remarks as party leader, Burnham stressed the importance of keeping Labour united, saying the party will not defeat the right if it remains divided by internal infighting. He also said he would not suspend or punish Labour members for holding views that differ from his own.

Burnham added that he has not yet decided on the composition of his cabinet, but said it would reflect all parts of the Labour Party. He also called for a less toxic political discourse and said Labour would not try to outflank the Reform Party on its own political ground.

On the economic front, Burnham argued that insufficient public control over the cost of essential goods makes it harder to control inflation. The comments reflect his intention to combine a pro-business approach with greater public intervention in sectors considered strategic. Reuters reported that Burnham presented his experience of working with businesses in Greater Manchester as the blueprint for his future government.

Market reaction

The British Pound (GBP) remained largely unmoved by the remarks, with GBP/USD trading around 1.3430 at the time of press, up 0.35% on the day.

ING strategist Francesco Pesole notes that the recent GBP rally has stalled and EUR/GBP has rebounded from an important break lower. At 0.850, the cross remains around 1.5% undervalued versus ING’s short-term fair value model. With aggressive market pricing for Bank of England tightening and political change in the UK, Pesole expects EUR/GBP to return towards 0.870 by end-summer.

ING expects EUR/GBP to rise as sterling remains overvalued

"EUR/GBP has rebounded after an extended run of an important break lower. Still, at 0.850, it remains around 1.5% undervalued according to our short-term fair value model."

"As discussed recently, positioning adjustments and carry trade attractiveness likely played an important role in driving GBP strength. But approaching a change in government (Andy Burnham becomes UK Prime Minister next week) with short-term overvaluation is a risk for the pound."

"Incidentally, we still see plenty of downside risk for front-end GBP rates. Market pricing for 35bp of tightening by year-end looks way too aggressive. Our call remains a hold. We still expect a return to 0.870 in EUR/GBP by the end of the summer."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Norman Liebke at Commerzbank expects European gas prices to remain high in the near term, even if the Strait of Hormuz reopens sustainably. War damage to Qatar’s LNG infrastructure, low European gas storage levels and stronger Asian LNG demand linked to El Niño underpin a tight market, with relief only seen longer term as US and Qatar expand export capacity.

Tight LNG keeps prices supported

"Even if the Strait of Hormuz remains open on a sustained basis, European gas prices are likely to remain high for the time being. This is because LNG supply is expected to remain lower than it was before the Iran war for some time, gas storage levels are low, and LNG demand from Asia is likely to pick up."

"If the Strait of Hormuz were to remain open on a sustained basis, the price of gas in Europe would certainly fall again. However, even then, it would likely not return to pre-war levels. In our view, there are three reasons for this."

"European gas storage levels remain low. They currently stand at only about 52%, nearly 15 percentage points below the average for the past five years. As a result, demand for gas to fill the storage facilities is likely to remain high in the coming months."

"If we take the daily changes over the past five years as a possible trajectory for gas storage levels, they are expected to peak at 75% by the end of October. That would be the lowest level since the data series began in 2009 and thus slightly lower than the 77% reached at the end of October 2021."

"Finally, due to the El Niño weather phenomenon, numerous extreme weather events are expected in the coming months, particularly in Asia. With a severe heat wave feared and the resulting increased use of air conditioners, electricity demand is likely to rise. This, in turn, could also increase the demand for gas-fired power and thus drive up the price of gas."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

MUFG’s Derek Halpenny notes that ongoing Middle East conflict, stronger United States (US) data and crude Oil risks are limiting US Dollar (USD) selling. Better manufacturing and retail figures have not shifted Fed expectations much, but a full hike remains priced by year-end. He warns that any sharp rise in Brent and escalation in conflict could bring forward Fed tightening and delay a renewed downtrend in the Dollar.

Middle East conflict underpins Dollar resilience

"There has been no let-up in the escalation of the conflict in the Middle East which continues to curtail appetite to sell the dollar. Attacks by the US have expanded in the sixth day of renewed fighting. Iran has responded by attacking US bases in Kuwait, Jordan and Bahrain."

"Observable traffic in the Strait of Hormuz is sparse but the advance of crude oil prices have certainly not yet hit a level that would see risk assets come under pressure via higher yields. The broader conditions in risk have worsened with investors continuing to reduce exposure in chip-related stocks as AI valuations continue to be questioned. This is not hurting the US dollar however with the sell-off impacting Asian equities to a greater degree."

"US data releases yesterday have also helped curtail dollar selling. The ‘Philly Fed’ manufacturing index surged (41.4 from 10.3) with most indices within the report pointing to a pick-up in manufacturing activity. Retail sales (control group) remained robust with a 0.5% gain following an upwardly revised 0.8% in May."

"A full hike remains priced by year-end, but spreads have generally remained against the dollar since the US inflation data this week. The risk of a sudden lurch higher in crude oil prices remains the primary deterrent to renewed US dollar selling. While there are reports that some tanker traffic is getting through the Strait of Hormuz it appears to be at a level that could quickly become problematic for energy supply – the IEA says within weeks."

"Another lurch higher in energy prices would see a Fed rate hike brought forward once again and this remains the primary risk to our view of a renewed trend lower for the dollar."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)