A Labour Party Win Not Seen as GBP Negative, Says Mizuho

Analysts at Mizuho suggest that a Labour Party victory in the upcoming UK election would not adversely impact the British pound (GBP).

The investment firm argued, in a note this week, that “the Labour Party may be more willing to push harder to mend the relationship with the EU,” potentially leading to improved economic conditions.

Given Labour's lack of historical conflicts with the EU, they might be “more successful than the current government” in achieving better terms.

The Bank of England (BoE) is expected to cut rates by 50 basis points this year, a less aggressive approach compared to the European Central Bank's anticipated 75 basis points cut.

This contrasts with the Federal Reserve's expected 25 basis points cut, suggesting the BoE will act “a little earlier and a little more” than the Fed. Despite this, sterling's valuation still appears “somewhat cheap.”

Mizuho says that GBP positioning has notably improved, especially among asset managers, and now appears neutral. Mizuho sees “relative market pricing as a slight negative for cable” but maintains a positive long-term outlook for the pound.

Mizuho forecasts the GBP/USD exchange rate to reach 1.34 and EUR/GBP to hit 0.81 by the end of the second quarter of 2025, signaling confidence in the pound's resilience and potential appreciation.

Meanwhile, Deutsche Bank said in its recent UK election preview note that its view regarding UK-EU relations has evolved slightly.

“To be sure, it remains the case that Labour have reiterated red lines around rejoining the customs union or single market when pressed,” said the bank. “Nevertheless, we see a small positive tail risk for the medium-term sterling outlook if the pro-EU Liberal Democrats win the second highest number of seats and thus become the main opposition party.”