Sterling has stabilised as the newly appointed government is working to restore fiscal credibility. However, the growth backdrop provides little incentive to buy sterling which may underperform on the crosses, economists at ANZ Bank report.

Policy settings are not going to be growth positive in the short term

“Policy settings are not going to be growth positive in the short term, even if many of the planned spending cuts may be pushed back until after the next election, which must be held no later than January 2025.”

“From a growth perspective it is difficult to get excited about Sterling’s prospects. We think this is particularly the case on the crosses as we expect the Pound’s fortunes against the USD will be determined more by the direction of the USD than GBP.” 

“We think selling rallies in GBP versus EUR and AUD as UK growth suffers and politicians grapple to find a coherent vision of the UK’s economic future could prove rewarding in coming months.”