Key facts
- The pound has weakened 0.4% against a trade-weighted basket this week, its worst performance in a month.
- Prime Minister Andy Burnham has indicated a desire to find flexibility within the UK's fiscal rules.
- The lack of clear policy proposals from the new cabinet is contributing to uncertainty.
- Potential for fewer interest-rate hikes could erode the pound's high-yield appeal.
The pound's recent rally is facing headwinds as the new UK government's fiscal strategy remains unclear. Prime Minister Andy Burnham's commitment to exploring "any flexibility" in fiscal rules has brought government spending back into focus, contributing to the currency's decline. The pound has fallen 0.4% against a trade-weighted basket this week, marking its most significant weekly drop in a month. The uncertainty surrounding the government's spending plans, coupled with the potential for fewer interest-rate hikes which could diminish the currency's attractiveness to yield-seeking investors, poses a risk to its stability.