Boris Johnson succeeds May as UK Prime Minister and the pound takes a tumble
Boris Johnson took a landslide victory against the Jeremy Hunt after the conservative party in the UK revealed the ballot results.
It’s no secret that since the UK decided to leave the trading bloc with the referendum in 2016, the pound has been taking a beating, dropping more than 15% against the euro. Lately, however, the market’s been ranging cautiously in anticipation of the election of a new leader that will spearhead Britain’s exit from the EU.
In fact, the news didn’t seem to cause much of a reaction as the result was arguably already priced in. If the market sentiment will remain stoic, however, after the new PM reveals his Brexit plans remain uncertain.
The only sure bet is that developments in the political landscape will be what drives the market for the next couple of months and investors should expect added volatility in EUR/GBP currently trading at 1.11383, a 2% change to the upside since the beginning of the month.
While the new PM isn’t necessarily a Eurosceptic, he does believe that Britain’s future lies outside the ostensibly ludicrous regulations imposed by the trading bloc on its members.
The word on the street is that Brits would be wise to start exchanging their sterling for euros even before they begin packing their suitcases for a summer vacation in Spain or Italy.
The anticipation of further devaluation of the pound may start to settle in sooner rather than later but much will also depend on the ECB’s policy updates set to be announced this Thursday. In truth, a rate hike is the most likely outcome, but some analysts are wondering if a surprise is in store instead and perhaps a more dovish stance could be adopted.
Clearly, traders and investors around the world will be keeping a close eye on the pound and euro the next few days and how movements in this pair will be translating into further gains or slides for the dollar.