The pound recorded its worst monthly performance. The defeat in the by-election highlights the challenges faced by the Labour Party.

Against the backdrop of rising political risks in the UK, the pound fell to a two-month low on Friday.

Bloomberg reported that the pound was trading at around 0.8760 against the euro on Friday (February 27th), the weakest level since December 19th last year. The pound/euro exchange rate is set to fall for the fourth consecutive week and has recorded its worst monthly performance since June last year. Meanwhile, the pound performed the worst among the G-10 currencies against the US dollar.

In a by-election for a parliamentary seat in Manchester, the Green Party candidate emerged victorious, while the previous seat belonged to the Labour Party. This highlights the threat facing Prime Minister Stammer.

It is understood that Treasury Secretary Reeves will release the government's spring economic report next week.

Market attention is increasingly shifting towards politics, as a large number of options traded this month will expire within a few days after the local elections on May 7th.

ING analysts wrote that in the coming weeks, there will be a continuous stream of political hotspots, including the aftermath of this week's by-elections as well as challenging local elections.

Option pricing indicates that the path with the least resistance for the pound is a decline. The risk-reversal indicator has further moved in the direction of a pound decline this month.