Euro Rallies Above 0.8700 Against The British Pound As UK Political Turmoil Worsens

• EUR/GBP jumps to five-week highs above 0.8700 on track to a 0.75% weekly rally.

• The Pound dives across the board as UK Prime Minister Keir Starmer fights for survival.

• Concerns of another fiscal crisis are adding pressure on the Sterling.

The Euro (EUR) rallies for the second consecutive day against an ailing British Pound (GBP) on Friday, crushed by growing political uncertainty in the UK. The cross reached fresh five-week highs above 0.8720 earlier on the day and is heading for a 0.75% weekly appreciation, its best performance in the last eight months.

Traders are selling the Pound across the board, following the resignation of the UK Health Secretary, Wes Streeting, the last of a series of resignations, following the disastrous Labour results at last week’s local elections. Streeting affirmed on Thursday that he "lost confidence" in UK Prime Minister Keir Starmer, which has increased his isolation.

Starmer has pledged to remain in charge, but his position grows weaker by the minute. Calls to resign have been mounting, and some Labour lawmakers are moving to replace him, with the Mayor of Greater Manchester, Andy Burnham, emerging as the best positioned.

The market is reacting with concern to the possibility of a disorderly leadership contest and, above all, of a new Prime Minister looking to increase government borrowing, as is the case with Burnham, which might trigger another fiscal crisis.

The UK economic calendar is practically void on Friday, while in Europe, Italian final Consumer Prices Index (CPI) figures have shown an unexpected slowdown in inflation in April, which has eased to a 1.6% monthly growth, from 1.7% in March, and a 2.8% increase in the previous 12 months, after a 2.9% reading in the previous month. The impact of these figures on the Euro, however, has been marginal.