All eyes on UK politics, how will the pound react to new UK PM?

Philip McHugh July 23rd 2019 - 2 minute read

The pound struggled at the start of this week’s session as sentiment was shaken by heightened political uncertainty in the UK.

Sterling remains on the defensive this morning, with GBP/EUR muted at €1.1117, GBP/USD sliding to $1.2436 and GBP/CAD slipping to C$1.6337. Both GBP/AUD and GBP/NZD have edged lower, striking AU$1.7711 and NZ$1.8473 respectively.

The outcome of the Tory leadership election will be in focus for GBP investors today, but how will the result impact currency markets?

What’s been happening?

The pound opened the week on the back foot as resignations by senior Conservative members added to already heightened political uncertainty in the UK.

Sir Alan Duncan announced his resignation as a foreign office minister yesterday ahead of an expected victory for Boris Johnson in the Tory leadership race.

This followed the announcement over the weekend that Chancellor Philip Hammond and Justice Secretary David Gauke were also ready to resign if Johnson become the next PM.

The euro also struggled a bit on Monday, with investors unwilling to make any bullish bets on the single currency amid speculation over whether the European Central Bank (ECB) could surprise markets with a rate cut this week.

Meanwhile, the US dollar initially got off to a strong start this week, strengthening on the back of tempered Federal Reserve rate cut expectations.

However, USD gains faded in the second half of the European session as another series of Tweets from President Trump criticising the Fed stoked concerns that his frequent attacks could be viewed as meddling in the independence of the US central bank.

What’s coming up?

We expect to see some volatility in the pound today, with a likely victory for Boris Johnson in the Tory leadership race potentially denting GBP exchange rates as fears of a no-deal Brexit rise.

Also potentially exerting some influence on Sterling today will be a speech by the Bank of England’s (BoE) Andy Haldane, with a dovish outlook from the BoE’s Chief Economist likely to further limit the appeal of the pound.

For EUR investors the focus will be on the Eurozone’s latest consumer confidence index. The gauge could see the euro move lower this afternoon if the consumer outlook within the bloc continued to deteriorate in July.

Finally, the latest US housing figures could drive movement in the US dollar today, with a suspected drop in existing home sales potentially dragging on USD exchange rates.
 

Written by
Philip McHugh

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