Citi Turns Tactically Bearish on British Pound Ahead of New Prime Minister Appointment

Citigroup has adopted a tactically bearish view on the British pound, anticipating a period of weakness against the euro linked to the expected appointment of a new UK Prime Minister later this month.

Political Shift Seen as Catalyst

Analysts at the bank identify the period after July 20, when Andy Burnham is expected to be officially named Prime Minister, as a potential catalyst for sterling downside. According to a note from Citi, this view is supported by a historical pattern observed following the UK's departure from the European Union.

Citi's research highlights that all four previous post-Brexit prime ministerial changes have resulted in an upward drift in the EUR/GBP exchange rate. The bank suggests this is likely because market optimism is fully priced in before a new leader takes office, leaving room for disappointment once the realities of governing begin.

Trading Strategy and Outlook

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In light of this outlook, Citi strategists suggest that any near-term strength in the pound could present a tactical opportunity. The bank stated it would look to use any dips in the EUR/GBP pair to position for a subsequent rise, targeting a move toward the 0.8450–0.8500 area.

A high degree of uncertainty remains regarding the new administration's specific policies and cabinet appointments, including whether Rachel Reeves will remain as chancellor. While the market has reacted positively to Burnham's initial comments on fiscal discipline, Citi sees potential for sentiment to shift post-appointment.

Market Context

Citi clarified that this is a tactical recommendation, separate from its fundamental bearish stance on sterling, where high carry costs can make timing short positions challenging. The bank also noted that from a valuation perspective, the EUR/GBP pair is currently "screening undervalued versus relative rates," providing additional support for its short-term thesis.