7 July 2022
The euro made another fresh march towards parity against the US dollar on Wednesday, as talk of recessions in the common bloc and around the world once again weighed on risk appetite. Summary:
The pound once again traded lower against the US dollar yesterday, ending the London session around the 1.19 level. We think that much of the weakness in sterling has been driven by the flight to safety and rising UK recession concerns more than anything else, although one could easily be forgiven for assuming that the recent sell-off has been a product of rising political uncertainty. While Boris Johnson continues to cling to power at the time of writing, it appears inevitable that a resignation or forced exit through another no confidence vote is imminent any day - some bookies are offering as little as a 2% chance that he survives the year. While a possible PM change is likely to dominate the national newswires, we actually see little meaningful immediate impact on GBP from the likely change in leadership. As of yet, there are no clear frontrunners to replace Johnson - Penny Mordaunt and Rishi Sunak appear to be in pole position, although bookmarks appear rather torn over half a dozen or more candidates. Until a clear favourite emerges, we won’t have any real read on potential policy implications, although regardless these changes are likely to be minor, and we think that markets will be paying much closer attention to both recession fears and interest rate expectations. As far as the latter is concerned, Bank of England Chief Economist Huw Pill said yesterday that the UK economy was set to ‘crawl’ in the coming 12 months, somewhat dampening expectations that ultra-aggressive rate hikes could be on the way during the remainder of the year.
- EUR/USD trades below 1.02 level for the first time since December 2002, as markets react to rising European gas prices, heightened recession fears.
- Boris Johnson’s time as Prime Minister appears to be at an end after host of cabinet resignations, calls among Tory MPs for his resignation.
- GBP driven more by recession concerns and expectations for BoE monetary policy. MPC member Pill says UK economy set to ‘crawl’ in coming year.
- CEE currencies lead losses in EM for second straight day, as energy crisis weighs on risk sentiment.
The pound once again traded lower against the US dollar yesterday, ending the London session around the 1.19 level. We think that much of the weakness in sterling has been driven by the flight to safety and rising UK recession concerns more than anything else, although one could easily be forgiven for assuming that the recent sell-off has been a product of rising political uncertainty. While Boris Johnson continues to cling to power at the time of writing, it appears inevitable that a resignation or forced exit through another no confidence vote is imminent any day - some bookies are offering as little as a 2% chance that he survives the year. While a possible PM change is likely to dominate the national newswires, we actually see little meaningful immediate impact on GBP from the likely change in leadership. As of yet, there are no clear frontrunners to replace Johnson - Penny Mordaunt and Rishi Sunak appear to be in pole position, although bookmarks appear rather torn over half a dozen or more candidates. Until a clear favourite emerges, we won’t have any real read on potential policy implications, although regardless these changes are likely to be minor, and we think that markets will be paying much closer attention to both recession fears and interest rate expectations. As far as the latter is concerned, Bank of England Chief Economist Huw Pill said yesterday that the UK economy was set to ‘crawl’ in the coming 12 months, somewhat dampening expectations that ultra-aggressive rate hikes could be on the way during the remainder of the year. To stay up to date with our publications, please choose one of the below:
📩 Click here to receive the latest market updates👉 Our LinkedIn page for the latest news✍️ Our Blog page for other FX market reports🔊 Stay up to date with our podcast FXTalk
