Sterling takes a hit after Sue Gray’s report into party scandal


Political uncertainty was the topic of conversations yesterday as investors digested the eagerly awaited Sue Gray’s report into the Downing Street parties scandal. Albeit a redacted version, which made no direct comment on specific events, the report found there were many wrongdoings by the Prime Minister and his government on various occasions during national lockdowns. His initial claims, that all rules were followed, now seem hard to accept as we understand that twelve separate incidents are currently under police investigation.

Downing Street has promised to publish the report in full, once the police conclude their investigation – but how long this will take no one knows. What we do know is there’s now growing unrest in parliament and Johnson will be under immense pressure to resign. This will be key for the pound looking ahead. As of result of yesterday’s events, Sterling shed some of its gains against both the dollar and the euro. With uncertainty in the air, there is further room for the pound to weaken should this story continue to dominate the news.

Looking ahead, Sterling should find direction from Thursday’s Bank of England meeting. The BoE will likely announce a rate rise of 25 BPS to help combat rising inflation. The market has already priced this in, which is why GBP/EUR has been trading near yearly highs

The market is also pricing in another four rises for the rest of the year. Should comments from BoE members say otherwise, or upcoming inflation data doesn’t warrant further rises, Sterling could continue to retreat from recent highs.

Key announcements

15:00 – USD – ISM Manufacturing PMI expected 57.4 vs previous 58.