The pound remained relatively stable on Tuesday, slightly down from Monday’s one-month peak, as investors assessed new political landscapes in Britain and France.
Sterling was steady from the previous day at $1.2804, a slight decline from Monday’s one-month high of $1.2846.
Traders were also awaiting U.S. Federal Reserve Chair Jerome Powell’s testimony later in the day.
The Labour party’s landslide victory in Thursday’s election promised stability after a tumultuous period with four Conservative Prime Ministers in five years.
This political shift has influenced the pound, which is one of the best-performing currencies this year.
The Bank of England’s decision to maintain higher-than-expected interest rates, driven by persistent wage and services inflation, has played a significant role in this performance.
Recently, signs of a slowdown in U.S. growth have pressured the dollar, indirectly supporting the pound.
Investors and analysts suggest that the prospect of political stability in the UK has been beneficial in the background.
Jane Foley, head of FX strategy at Rabobank, noted, “On the hope that UK politics can avoid the dramas and uncertainties associated with the Brexit, (Boris) Johnson and (Liz) Truss periods, we expect that GBP can continue its slow grinding recovery.”
Sterling was also stable against the euro, with the eurozone currency trading at 84.54 pence.
The euro has experienced fluctuations in recent weeks due to uncertainty surrounding the French elections, which concluded on Sunday with a hung parliament and a surprisingly strong performance by the left.
Analysts anticipate further volatility in the euro as parties negotiate to form a government, leaving the political situation uncertain.
This ongoing political ambiguity in France is expected to continue influencing the euro’s performance in the near term.