The pound pared earlier gains as no deal Brexit returns to haunt investors. Boris Johnson, who favours Brexit come rain or shine, deal or no deal, stormed ahead in the first round of votes in the Tory leadership battle. Winning 114 votes to Jeremy Hunt’s 43 puts Boris as the firm favourite to win the leadership battle and replace Theresa May as Prime Minister. Pound traders are less than thrilled at the prospect of Boris Johnson taking the helm, particularly after Parliament blocked an attempt by Labour to prevent a no deal Brexit.

With Johnson in the lead, the pound will struggle to make any meaningful moves higher. Given that he is the polls favourite to win, we don’t envisage any large scale sell off for the time being, his victory is now pretty much baked into the price. That said, Boris does have the power to send the pound back towards $1.20 should he regain his enthusiasm for a no deal Brexit.

Oil jumps 4% amid elevated Middle East tensions

Oil remained elevated, gaining up to 4% at its high, as investors reacted to attacks on vessels in the Strait of Hormuz. The attacks are the second this month close to this strategic shipping route for oil. Around 30% of the world’s oil passes along this route, so oil prices will be particularly sensitive to disruptions in the region. Should these waters become unsafe, a worst-case scenario would have a serious impact on oil supply.

Tensions have been rising in the Middle East since President Trump slapped crippling sanctions on Iran in an attempt to curb Tehran’s nuclear ambitions. As tensions in the Middle East bubble, this is unlikely to be the last incident of this nature. Whilst oil traders had been focusing on demand issues over the past few weeks amid ongoing US – Sino trade tensions and the prospect of a global downturn, today’s event has put the supply side of the equation firmly back in the driving seat.

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