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The world money market felt better after years of ups and downs when Keir Starmer’s Labour Party won big in the UK elections.
The British pound kept most of its value against the Nigerian naira this year and stayed strong against other safe currencies.
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Even with some election results still to come, Labour won more than 326 out of 650 seats in parliament. An exit poll said they would win over 410 seats, and Prime Minister Rishi Sunak from the Conservative Party admitted they lost.
We need more info on Keir Starmer’s ideas for taxes, spending, and how he plans to grow the economy.
The Nigerian naira didn’t do well against the British pound and other major currencies, both in official and unofficial markets. This was partly because more people wanted foreign money.
On the black market, the British pound sold for N1,905 against the naira, even though the official market had gotten better.
This week, the pound went up 1% against the US dollar, making it the best week since mid-May. The pound also did better than many big currencies this year when compared to the dollar, gaining more than 100 basis points.
The pound was last seen at $1.276 in London trading, just below the three-week high of $1.27765 reached on Wednesday.
Labour Inherits a Stable Economy
The British pound and UK bond yields showed steady confidence during the UK election because the market believes Labour will keep the UK’s budget stable.
Now, people are watching Keir Starmer’s first 100 days in office and his plan to fix public services and grow the economy at the same time.
Investors want to see if Starmer sticks to his promise of being careful with spending and keeping things stable. The Bank of England is likely to lower interest rates from 5.25% because inflation is back to the target of 2%.
The market expects the UK’s GDP to grow by 1.2% this year and by 1.5% in 2025 and 2026. This is because we think inflation will go down a bit more, and the Bank will lower rates to 3% next year.
Also, the Budget Responsibility will give Labour about £16 billion (0.6% of GDP) in extra spending room right after the election, up from £8.9 billion (0.3%) in the March budget.
U.S. Job Report Coming Soon
Currency traders are now looking at the non-farm payrolls report expected later today, when U.S. traders come back from their July 4th holiday.
The market thinks the report will show a gain of 190,000 jobs in June, after gaining 272,000 in May.
Many signs are showing the U.S. economy is slowing down, which makes people think the Federal Reserve might lower interest rates soon. According to the CME FedWatch tool, traders see a 73% chance of a rate cut in September.
Even though the Fed only predicted one rate cut for 2024 last month, the market thinks there might be two cuts this year. A lot will depend on the new data that comes out.
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