Pound enjoys temporary gains as Johnson launches leadership campaign

The pound saw some fleeting gains yesterday following comments from Boris Johnson, the frontrunner in the Conservative leadership race.

Sterling is back on the defensive this morning however, with GBP/EUR dipping to €1.1214, GBP/USD muted at $1.2672 and GBP/CAD sliding to C$1.6874, while GBP/AUD and GBP/NZD hold steady at AU$1.8336 and NZ$1.9289 respectively.

Coming up today is the release of the Eurozone’s latest industrial production figures, with another expected slump in factory output in April likely to weaken the euro.

What’s been happening?

The pound continued to drift higher in the mid-week as GBP exchange rates were lifted by the launch of Boris Johnson’s leadership campaign.

At an event in London, the clear frontrunner to replace Theresa May as Prime Minister said that as PM he would ‘not aim for a no-deal Brexit’.

While this came as a relief to GBP investors, the resulting upside in Sterling was capped as Johnson also stated that the UK must exit the EU by 31 October and that a no-deal outcome remained a possibility.

Helping to shore up the GBP/EUR exchange rate on Wednesday were comments from European Central Bank (ECB) President Mario Draghi who warned of headwinds facing global trade, which added to the already gloomy mood in the Eurozone.

Meanwhile, the uptick in the GBP/USD exchange rate ultimately proved short-lived yesterday, with the pairing decelerating following the release of some weaker-than-expected US inflation figures as analysts suggested that a rate cut from the Federal Reserve has already been priced in.

What’s coming up?

Looking ahead, the euro will likely be in focus this morning with the publication of the Eurozone’s latest industrial production figures.

Economists currently forecast that factory output will have seen another modest decline in April, with growth sliding from -0.3% to -0.5%, likely dragging on the euro.

However there is the risk that EUR exchange rates could come under additional pressure if production contracts faster than expected and echoes the dramatic fall reported by Germany.

Meanwhile, the pound is likely to remain sensitive to politics today as Tory MPs cast their votes in the first ballot in the leadership election.

Finally, in the absence of any notable US data, movement in the US dollar is likely to be driven by market risk appetite, with any escalation in US-China trade tensions likely to buoy USD exchange rates.