Sterling fell at the end of last week as Boris Johnson moved closer to becoming the next Prime Minister. Investors are worried that a Johnson led government increases the chances of a no-deal Brexit. With Michael Gove falling out of the race, Johnson now faces Jeremy Hunt in a direct contest to succeed Theresa May. Since Boris Johnson’s announcement that he will run, Sterling has devalued by 4% against the Euro, with a risk of a no-deal Brexit being priced in my market investors.
The political events overshadowed what was a busy week for monetary policy, with the Bank of England continuing with its message that interest rates would need to rise. This had given the pound respite, especially against the greenback, but the leadership race tempered any big weekly gains.
The dollar continued to fall on Friday off the back of news from the Federal Reserve that they could look at lowering interest rates.On Wednesday, The Fed signalled it was prepared to lower interest rates in order to counter the global economic slowdown. The immediate aftermath saw the dollar experience losses for three straight sessions.
N/A – GBP: Inflation Report Hearings