Citigroup warns: The British pound faces its "most vulnerable moment" in May, as political turmoil and rate cut expectations put it under double pressure.

Citigroup strategists warn that the pound will face its biggest test in the next two months. At that time, political uncertainty in the UK and expectations of Bank of England rate cuts will resonate, putting significant downward pressure on the pound. Daniel Tobon, a strategist at Citigroup, said that although the market has “initially sensed” these two risks over the past week, the real window of downside risk will open on the eve of the May local elections. Polls show that the party led by Prime Minister Starmer may face pressure, his leadership has already been shaken, and political uncertainty is likely to intensify further. Meanwhile, the Bank of England is expected to restart rate cuts in the coming months. Last week, the bank unexpectedly decided by a narrow margin to keep rates unchanged, but the market generally believes the easing cycle is not yet over. **Political and Monetary Policy Risks Intertwine** Citigroup strategist Daniel Tobon pointed out that political uncertainty and monetary policy easing are the two core logics for shorting the pound at present, and these two themes will converge between April and May, when the pound will see “a much bigger reaction.” He said: > “It's still too early to seriously bet on these scenarios; April and May are when these themes come together, that's the window we want to participate in.” This week the pound rebounded against the dollar and recouped some losses against the euro. The previous decline was triggered by the resignation of a senior member of Starmer’s team, bringing political uncertainty back into focus. Given that the pound’s gains this year have mainly come from the passive support of a weaker US dollar, many institutions believe that expressing UK risk exposure via euro/GBP trades is currently a more efficient way to trade. **Expectations of Rate Cuts Heat Up** Signals from the options market show that from March onwards, selling pressure on euro/GBP will gradually increase as the market positions in advance for the Bank of England’s rate cut actions. Citigroup strategist Daniel Tobon expects the next rate cut could come as soon as April, with subsequent cuts in July and November, making the pace of easing significantly faster than current market expectations. However, he also points out that by then the final results of the local elections will be clear. He said: > “What could really trigger volatility are the few weeks before the elections.” Citigroup’s bearish stance on the pound is more aggressive than market consensus. Its target for the pound to fall to 88 pence per euro by end-June matches the Bloomberg survey median, but it further predicts a drop to 90 pence by end-September, showing sustained pessimism about the pound’s medium-term outlook. Risk warning and disclaimer The market carries risks; investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are appropriate to their particular situation. Investment based on this article is at your own risk.