UK investors waiting for the leadership outcome for Brexit and pound outlooks
Written by Canarian Weekly Business
SINCE Britain's Conservative Party leadership contest began, last week, the pound's movement has been limited, because of expectations that there will be no Brexit progress until it concludes.
Despite this, the euro has been unable to capitalise on the pound's weakness, because of various Eurozone economic and political uncertainties, leaving GBP/EUR trending in a tight region near €1.12, while EUR/GBP is trending near £0.89.
The US dollar has seen high volatility throughout, and GBP/USD is currently trending near its worst levels of $1.25, and EUR/USD near $1.12, as the greenback steadied ahead of this week's Federal Reserve news.
After falling throughout May as no-deal-Brexit fears returned, the pound has been trending closer and closer to its worst levels all year, since the beginning of the month. UK Prime Minister Theresa May stepped down as leader of the Conservative Party, kicking off the party's leadership contest. The frontrunner of the contest, Boris Johnson, advocates a hard Brexit, which is keeping pressure on the pound.
The euro has been unable to capitalise on the pound's weakness, though. Since the end of May, GBP/EUR losses have slowed, as Eurozone data continues to disappoint investors, worsening concerns that the European Central Bank (ECB) could soon be pressured into taking a more dovish stance on Eurozone monetary policy.
Still, much of the strength the US dollar showed earlier in the year has also faded. US trade protectionism, and signs of weakness in the economy, have led to higher Federal Reserve interest-rate-cut expectations. Speculation that rate-cut bets have been overdone helped the US dollar to recover, last week, but the US currency's months of gains appear to have come to an end.
For the pound, it's unlikely that much will change for at least another month, as the formalities of the Conservative Party leadership contest unfold. Markets already have a pretty good idea of who will be PM, but, until it is confirmed, there are unlikely to be any developments in Brexit.
This will leave the pound to be driven by strength in its rivals, as both the euro and US dollar are likely to be driven by economic, political, and Central Bank news.
This week’s biggest event was Wednesday's Federal Reserve decision, and the tone taken by the bank on US monetary policy will be what has impacted on the US dollar's movement.
European Central Bank (ECB) speculation will be influenced by major Eurozone data, such as inflation data, due last week. Aside from major data, news in trade and political tensions will also influence the euro and US dollar.
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