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Pound steadies as Rishi Sunak confirmed as next UK PM

Philip McHugh October 25th 2022 - 2 minute read

The pound steadied on Monday, after it was confirmed that Rishi Sunak won the Conservative leadership race and would become the UK’s next Prime Minister.

Sterling is holding its ground so far this morning, with GBP/EUR buoyed at €1.1457 and GBP/USD flat at $1.1300. GBP/CAD is rangebound at C$1.5500, while GBP/AUD and GBP/NZD hold steady at AU$1.7871 and NZ$1.9812, respectively.

Sunak’s first moves in office will likely be the primary focus for GBP investors today.

What’s been happening?

The pound initially got off to a strong start this week, following the news that Boris Johnson had pulled out of the Tory leadership race.

GBP investors feared a second Johnson premiership would have injected fresh political risk into Sterling.

Despite being seen as a ‘safe pair of hands’, the pound had pared a good portion of these gains by the time that Rishi Sunak was confirmed as the new Prime Minister.

This came in the wake of the latest UK PMIs, after October’s preliminary figures reported a larger-than-expected slump in the vital service sector.

The euro, struggled to attract support on Monday, following the publication of the Eurozone’s own PMI releases. These showed that the contraction in the bloc’s private sector deepened this month, with activity slowing to a near two-year low.

Meanwhile, trade in the US dollar was mixed yesterday. Suggestions the currency was oversold following Friday’s rout helped to push the ‘greenback’ higher. Before some abysmal US PMI releases curtailed USD demand later in the session.

What’s coming up?

Looking ahead, GBP investors will be focused on Sunak’s first moves as PM. If he is able to convince markets his fiscal strategy will be more responsible than his predecessor, the pound is likely to strengthen.

The Confederation of British Industry’s (CBI) latest business optimism index may also influence Sterling today. Will a gloomy outlook for the manufacturing sector weaken GBP exchange rates?

In the meantime, the euro could face some headwinds this morning with the publication of the latest IFO business climate index from Germany. Will another deterioration in business sentiment push EUR exchange rates lower?

Finally, in the absence of any high-impact US data, any movement in the US dollar today is likely to be linked to market risk appetite. A downbeat mood likely pushing USD higher.

Written by
Philip McHugh

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