Boris Johnson’s cabinet cull fails to take the shine off the pound

Philip McHugh July 25th 2019 - 2 minute read

The pound jumped yesterday as markets reacted to Boris Johnson’s first day in office.

Sterling appears to be consolidating its gains so far this morning, with GBP/EUR stable at €1.1208, GBP/USD flat at $1.2478 and GBP/CAD muted at C$1.6385. GBP/AUD and GBP/NZD are both holding steady at AU$1.7907 and NZ$1.8636 respectively.

In the spotlight today we have the European Central Bank’s (ECB) latest policy decision – will a dovish tone from the bank drive the euro lower?

What’s been happening?

The pound leapt against the majority of its peers on Wednesday as Boris Johnson officially entered office as UK Prime Minister.

This surge in Sterling came in spite of a major cabinet reshuffle by Johnson, which saw him sack over half of Theresa May’s old cabinet and appoint a number of Brexiteers to key positions.  

The euro was the clear loser in yesterday’s session following the release of some abysmal Eurozone PMI figures, with a sharp drop in Germany’s manufacturing PMI in July proving particularly disconcerting for EUR investors amid fears that it could put the Eurozone’s largest economy on the path towards a recession.

Meanwhile, the US dollar edged lower yesterday, retreating from its recent highs as US-China trade optimism undermined demand for the safe-haven currency.  

What’s coming up?

Centre stage today will be the conclusion of the ECB’s July policy meeting, which is widely expected to see the bank deliver a notably dovish message.

With economic conditions in the Eurozone continuing to deteriorate, it seems inevitable that the ECB will move forward with plans to inject fresh stimulus this year, the details of which are expected to soften the euro today.

However there is also the chance that the ECB could surprise markets with a rate cut this month, keeping EUR investors on their toes.

In focus for USD investors will be the publication of the latest US durable goods figures, with an expected rebound in goods orders last month potentially lifting the US dollar.

Finally, we expect to see UK political developments remain the main catalyst of pound movement today, with the publication of the Confederation of British Industry’s distributive trends index potentially exerting some downward pressure in the morning if UK retail activity remained weak in July.

Written by
Philip McHugh

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