Pound perks up on latest leadership contest but Brexit pressure remains

Today's Highlights

• Euro treading water with economic stimulus on the cards

• All eyes on Federal Reserve

Current Market Overview

After the second round of voting in the Tory leadership contest, Boris Johnson pulled further away from the field, but the Pound remained muted. GBP-USD – as of 18th June already at a five-month low near 1.25 on interbank rates, thanks to uncertainty over Brexit and the leadership contest – rose marginally on the day, but that was more because of a weaker US Dollar than reassurance over the vote outcome.

Brexiteer candidate, Dominic Raab, was eliminated from the contest to become British Prime Minister on the evening of 18th June, after picking up just 30 votes – three lower than the required threshold.

Boris Johnson again topped the vote of Conservative MPs on 126, which is 12 more than in round one.
Second was Jeremy Hunt on 46, up three, and Michael Gove was third on 41, up four.

Wild card, Rory Stewart, did better than expected with 37 votes, almost double his 19 votes last time. Sajid Javid squeezed in on 33 votes, the minimum required and a rise of 10.

What does it mean for the Pound?

Earlier in the day, GBP-USD approached 1.25 in typical mid-market rates on Brexit worries and concern over the Conservative leadership outcome. That is a five-month low. Following publication of the results last night, the Pound rose to 1.255 against the US Dollar – but Halo Financial’s Founding Partner, David Johnson, says this was more to do with a weaker US Dollar, ”The markets are still concerned about the threat of a no deal Brexit and how that would affect the UK economy.
“But, on Tuesday, the Pound benefitted because of worries over today’s (Wednesday) statement from the US central bank, the Federal Reserve, which is expected to be more dovish due to the continued trade war with China and disappointing inflation figures. This pulled the US Dollar down against Sterling.”

No Greatest Showman here

After the vote, the five remaining Conservative Leadership candidates took part in a BBC TV debate answering questions from the public on issues including no-deal Brexit, the economy, Islamophobia, climate change, social care and the Irish border.

Most commentators believed the spectacle was chaotic, with no clear winner. Boris Johnson avoided any major gaffes, but Rory Stewart did not impress as much as expected. All candidates said there was no need for a General Election immediately following the change of leadership.

What happens next?

Over the next two days, MPs will hold a series of ballots until only two candidates remain. From Saturday 22nd June, Conservative Party members will vote in a postal ballot up until 12th July and the result will be announced in the week of 22nd July.

Halo Financial will continue to bring you the latest news of the leadership contest and its effects on the currency markets.

Euro treading water as economic stimulus on the cards for Eurozone

Mario Draghi, President of the European Central Bank (ECB), admitted in his latest speech that more monetary stimulus could be needed in the near future. The Euro appears to be hanging on, however, as the US Dollar nervousness around the big Federal Reserve announcement continues. To further muddy the waters, Germany's ZEW institute's index of German business sentiment hit its lowest level since November in June. The same measure for the Eurozone was down, too. So all is not well in the Eurozone economy, and that’s not great for the Euro’s ongoing prospects.

Draghi is due to speak again today (Wednesday 19th June), but markets are already shifting their focus to the US for the all-important Federal Reserve statement later. The overall mood is one of caution and continued uncertainty.

All eyes on Federal Reserve this afternoon

All eyes turn to the Federal Reserve now, awaiting the highly anticipated announcement this afternoon. Bets are on as to whether the US central bank will cut interest rates, given recent disappointing economic performance indicators and concerns about the continuing US-China trade war and what it will mean for the US economy and currency. It is unlikely that they will cut rates at today’s meeting, but the laser focus of the markets is on the language used in the announcements – any hints at future rate cuts can do just as much damage to the Dollar. A series of interest rate cuts could be announced, as the central bank turns to a more tentative stance. Once again, we watch and wait.

Time to take action

Get in touch if you are planning to make any significant US Dollar or Euro payments now or in the coming days – there could be some big changes ahead and we want to make sure you can make the most of your money with these market movements.