Macquarie strategists suggested that the British Pound (GBP) could potentially rebound if a new government in the United Kingdom (TADAWUL:4280) introduces a successful pro-growth economic policy, according to a note on Thursday.
This perspective comes as UK Gilt yields have spiked, reminiscent of the events from last October, but with credit default swap (CDS) spreads rising more sharply this time.
The increase in yields and spreads is occurring against a backdrop of declining political support for the Labour government, which could signal a forthcoming political shift.
The current situation in the UK is drawing comparisons to the Labour-led government in Canada, which experienced low approval ratings and weak growth.
Macquarie strategists believe that, similarly to Canada, the UK could see an economic turnaround if a new government were to implement and maintain effective pro-growth policies.
This potential for a policy-induced recovery is becoming a focal point for foreign exchange (FX) market observers, especially considering recent geopolitical trends and events.
The strategists’ comments also come in the wake of the Federal Reserve’s publication of its meeting minutes, which have clarified the Fed’s concerns regarding inflationary pressures from President Trump’s policy agenda.
The December minutes revealed that Trump’s policies on taxes, immigration, and tariffs were significant topics of discussion and have contributed to the Fed’s heightened sense of caution.
These insights into the Fed’s deliberations indicate a close monitoring of the potential inflationary effects of current U.S. policies. The Fed’s cautious stance underscores the importance of government policy actions on both sides of the Atlantic and their implications for currency markets and monetary policy.
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