Monthly Wrap: GBP – Pound rocked by political uncertainty, BoE rate speculation

Key takeaways:
–              Markets welcome hawkish shift in the BoE, August hike looks likely.
–              Political uncertainty rises as Johnson and Davis resign.
–              GBP Monthly lows: €1.12, $1.30, AU$1.75, NZ$1.89, C$1.73
–              GBP Monthly highs: €1.13, $1.34, AU$1.79, NZ$1.96, C$1.77

The pound saw some dramatic swings in movement throughout the month of June, with a mix of Brexit uncertainty and interest rate speculation preventing the currency from finding a steady baseline.
The first signs of Sterling’s troubles came as the UK government struggled to push its EU withdrawal bill through Parliament due to opposition from rebel Tory MPs.
While it eventually passed, the saga caused considerable weakness in the pound as it underlined the deep divisions within the Conservative party over how Brexit should be handled.
However GBP investors didn’t remain dejected for long, with a hawkish shift within the Bank of England (BoE) at its June policy meeting bolstering hopes that the bank could target a rate hike in August.
This came as BoE Chief Economist, Andy Haldane – previously seen as one of the most dovish policymakers – voted for an immediate rise in interest rates.
These expectations were further bolstered by the UK’s final GDP reading for the first quarter, with UK growth being revised up from 0.1% to 0.2%.
Meanwhile the pound only appears to have become more volatile in July, with a marked rise in political uncertainty rocking the currency.
This comes in the wake of the departure of two senior cabinet ministers, with both Boris Johnson and David Davis resigning in protest over Theresa May’s Brexit proposal.
While May appears to have narrowly avoided a leadership challenge, much to the relief of GBP investors, the growing political uncertainty in the UK may cast a long shadow over the pound throughout the remainder of the month.
Looking a little further forward, Sterling could find considerable support towards the end of the month in the build-up to the BoE’s August rate decision.
Economists are currently expecting upcoming economic data will reveal that both UK inflation and wage growth ticked higher in the past couple of months, likely fueling expectations that the BoE will deliver a rate hike next month.
Conversely the pound could find the rug pulled out from beneath it should the rise in political uncertainty prompt the BoE to delay its monetary tightening programme.