Pound sinks ahead of UK PM announcement
(19 July 2019 - United Kingdom) Financial markets will digest the outcome of the United Kingdom's (UK) Conservative Party leadership vote to take place on Sunday July 21 to determine the new British Prime Minister.
Boris Johnson is widely expected to win the vote of Conservative Party members following a six week campaign to become the UK’s new leader having previously portrayed the face of the Leave campaign in the 2016 Brexit referendum.
Johnson is expected to edge foreign minister Jeremy Hunt to succeed Theresa May. Voting results are expected on Tuesday July 23 but may be leaked before that time. A new UK Prime Minister will be in place by Friday July 26. The pound sterling (GBP) has depreciated to its lowest in almost three years as the two candidates attempted to out manoeuvre each other with 'Hard Brexit' posturing, including pledges to leave the EU with or without a transition trade deal by the October 31 deadline. East & Partners Global Currency Forecasts, based on direct interviews with 80,000 CFOs globally, indicates UK importers and exporters are highly uncertain given six month predictions for the GBP/USD fall within a wide band from $1.38 to $1.25. Significant disparity exists by business size and trade profile.
UK economic growth is faltering, recession concerns are building and in the event of a 'no deal' Brexit the currency will undoubtedly slide further. Scotland is poised to move closer to a second referendum to leave the union with England and Northern Ireland which will become further strained on the question of a border with Ireland in the south which will remain a part of the EU. The EU has warned it will not give any more concessions to the UK on the departure question and that will be punctuated in the event the new Prime Minister is Boris Johnson given his support of anti-EU sentiment.
Morgan Stanley reports that the skittishness in FX markets over the hard-line approach adopted by both Boris Johnson and Jeremy Hunt risked pushing the 'cable' GBP/USD from its current level of $1.24 to the lowest level since it almost reached parity in the mid-1980s. Morgan Stanley stated that before Theresa May announced she was stepping down markets had anticipated a soft Brexit along with access to the single market or even a second referendum however financial markets have adjusted these probabilities sharply lower.
“The pound has come under intense selling pressure since Prime Minister May withdrew from her party leadership position, leaving markets with increased concern that the UK may be heading towards a harder Brexit. Should this scenario materialise, pound-dollar could fall into the $1.00-$1.10 range” the bank stated in a research note.
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