Market News

LONDON, Feb 27 (Reuters) - The pound struggled to gain traction on Friday, as mounting geopolitical tensions prompted investors to back away from more typically volatile currencies, and after an election in northern England brought a resounding defeat for Prime Minister Keir Starmer's Labour party.

Sterling was heading for a second weekly decline, having lost 0.1% and on Friday stalled against both the dollar and the euro, which traded at $1.3483 and 87.55 pence, respectively.

Britain's left-wing Green Party on Friday scored a landslide victory in an area of Manchester the Labour party had dominated for almost a century, piling further pressure on Starmer to prove that he should keep his job following weeks of political turmoil and calls for him to resign.

Gilts edged up modestly, pushing yields lower. Five-year bonds , which are set for their strongest monthly performance since last October, were last yielding 3.703%, down 1.4 basis points on the day, near their lowest since September 2024.

The pound is highly sensitive to national politics. Doubt over Starmer's future and whether a more left-leaning successor might be inclined to further strain the UK's finances with more spending, for example, has acted as a drag on sterling for several weeks.

"Anything that is seen weakening the position of Prime Minister Keir Starmer has hit the pound as of late, and the success of a more left-wing party (Greens) in this special election might increase the perceived possibility of a more leftish successor to Starmer should he leave office early," ING strategist Francesco Pesole said.

Prediction market Polymarket shows customers are placing a roughly 53% chance of Starmer stepping down by June, up from around 24% at the start of February.
Bank of England Chief Economist Huw Pill will address an economics panel later in the day. The BoE is widely expected to cut rates in March and deliver a second cut before the end of the year, based on money markets.

Reporting by Amanda Cooper; Editing by Toby Chopra