The pound stabilizes and waits quietly for Burnham's economic blueprint. Expectations for fiscal expansion and the selection of a finance minister are the focus of the market.

The pound held steady on Monday, with investors closely watching the important economic policy speech to be delivered later in the day by Andy Burnham, a leading candidate for the next Prime Minister of the UK. It is widely expected that Burnham will take office in the coming weeks and his governing approach, especially his plans for finance and devolution of power, are becoming key variables shaping the direction of the UK financial markets. The pound has already fallen 1.7% this month, potentially marking its biggest monthly decline since March. The dollar has climbed to a year-long high due to the temporary peace agreement in the Iran war and the market reassessing the outlook for US interest rates, putting pressure on the pound. On Monday, the pound rose slightly against the dollar by 0.08% to 1.3213, but still hovered near a seven-month low. A week ago, UK Prime Minister Keir Starmer announced his resignation, further weakening the popularity of the pound. Burnham is currently the only publicly declared candidate to lead the Labour Party upon his return to Parliament, and if there are no other contenders, he is set to become Prime Minister on July 20. Therefore, his speech in Manchester is seen as a key window for outlining his economic policy framework. Burnham plans to push for a ten-year economic transformation plan called "No 10 North," which promises to improve living standards in various regions through extensive devolution of power, giving mayors greater budgetary control over areas such as housing, welfare, and education that are currently controlled by Whitehall, in order to "promote positive growth in every corner of the UK." However, what concerns the bond market the most is Burnham's attitude towards fiscal discipline. He is known for supporting a more expansionary fiscal policy, but at a time when the UK's fiscal room for maneuver is limited, any significant increase in borrowing or spending could lead to market turmoil. Burnham has explicitly stated that he will adhere to the fiscal rules set by current Chancellor of the Exchequer, Rachel Reeves, which involve covering daily expenses with tax revenue and lowering the ratio of debt to national income by the 2029-30 fiscal year. Reeves has publicly urged him to stick to the current path, stating that her economic strategy is "beginning to show results" while also supporting "devolution of fiscal power." However, some left-wing members of the party have called for relaxing these rules to loosen spending. Because of this, who Burnham ultimately chooses to lead the Treasury will be crucial in shaping market pricing. Analysts warn against repeating the mistakes of former Prime Minister Liz Truss, who introduced a massive tax cut without funding support, causing significant turmoil in the bond market. David Stritch, a strategist at Caxton, emphasized, "Bond yields have nearly doubled since the pandemic, deficit spending continues. All of this shows that what is least needed right now is another round of largesse. When the previous government announced ambitious policies that lacked funding support and deviated from orthodox economic policies, the result was disastrous. If Burnham can avoid the same pitfalls, it would be a wise move." It is reported that Ed Miliband, Wes Streeting, and Shabana Mahmood are all potential candidates to succeed Reeves. Concerns about the sustainability of the UK's finances are clearly reflected in the current holdings data. According to the weekly statistics from the US Commodity Futures Trading Commission, investors currently hold a record net short position in the pound worth $8.72 billion, the largest bearish bet since June 2015, second only to the historical peak of $9.567 billion in May 2015. Political uncertainty combined with doubts about fiscal discipline are putting double pressure on pound assets. In addition to economic plans, Burnham is also facing calls to make commitments on defense spending. The defense investment plan will be announced before the new Prime Minister takes office, outlining years of funding increases. Former Chief of Defense Staff, Admiral Tony Radakin, has publicly urged Burnham to commit to increasing defense expenditure as a percentage of GDP to 3.5% by 2035, comparing his responsibility to that of a "wartime Prime Minister." However, the opposition parties are not impressed with Burnham's upcoming speech. Conservative Party Chairman Kevin Hollinrake criticized Burnham's "big ideas" as merely shifting power between politicians, rather than truly advancing welfare reform, tax cuts, or ensuring defense funding. A spokesperson for the Reform Party mocked his speech as "filled with rhetoric but lacking substantive measures," and pointed out that Burnham is imitating Starmer's style of "talk without action." Liberal Democrats leader Ed Davey also warned that the public is eager for change and their patience is running out, leaving Burnham with a "very short" window to turn the government around. This week's market risks do not end here. The US monthly employment report is about to be released, and the new Fed Chair Kevin Wash will speak publicly at the annual forum of the European Central Bank in Sintra, Portugal on Wednesday, providing global investors with more clues about the path of US monetary policy.