PM’s resignation adds to the uncertainty around the UK economy

GBP

Yesterday we saw the pound dropping to a two-year low – traders moved to the sidelines while the Conservative leadership contest kicked off to determine the next Prime Minister. Johnson’s resignation has deepened the uncertainty in the UK economy, taking into consideration the soaring inflation and recession risks.

GBP/USD was trading at 1.1867 which is the lowest level since March 2020, down 1.2% in yesterday’s trading session. The leadership debate enters volatile times with Wednesday’s GDP data release expected to show a major contraction for Q2. With no sight of positive supporting data for Sterling, we expect the pound to remain under pressure against major currencies. Wednesday will be a key day in terms of UK data as further downturn could affect Sterling.

EUR

Yesterday we saw the euro plummet to a twenty-year low – the currency came closer to parity against the US dollar on Monday after concerns that an energy crisis will tip the region into a recession. Whilst the US currency was boosted by expectations that the Federal Reserve will hike rates faster and further than its peers. The euro tumbled 1.29% to $1.0056, the weakest since December 2002.

USD

On Monday the dollar rally against both the euro and the pound as the two major currencies were hit with gas supply concerns and Britain’s economic uncertainty. The dollar remained in demand at the start of the week amidst a decline in global equity markets linked to fresh Covid-19 lockdowns in China.

Key announcements

10:00 – EUR – EU Economics Forecasts
18:00 – GBP – BoE Governor Bailey speaks