Sterling at 4-month low as key ministers resign

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10 July 2018


Monday was a true rollercoaster for the British Pound. Sterling fell during Asian trading, as markets received the information that key British Brexit negotiator, David Davis resigned after not being able to find common ground with Prime Minister, Theresa May.

s investors digested the message, markets soon started to view the resignation as favourable to May and her government, as a closer ally, Dominic Raab, was assigned to fill this post and could potentially push for a softer Brexit.

Sterling suffered significantly later in the day, when Boris Johnson, foreign secretary and key Brexit supporter announced his resignation, opposing Theresa May’s soft Brexit approach, claiming that the UK was headed for ‘the status of a colony’ if the Prime Minister’s plan is to be adopted. Following his resignation, investors started to fear for May’s position in her own government, and GBP/EUR fell by almost 1%, to its lowest level in four months.

The Prime Minister, however, survived another fight for her political life as several Conservative lawmakers said she is most likely safe from a leadership challenge, which helped Sterling to recover some of its losses later in the day.

EUR/USD rally pauses after reaching a new high

The most traded pair, worldwide, rose early on Monday mainly supported by the continuing Dollar decline. Returning risk appetite translated into gains for EM currencies and a hit for the Greenback. A weaker Dollar helped push EUR/USD close to 1.18 level during European trading. The pair’s fate, however, turned in the second half of the day on the announcement Boris Johnson’s resignation, causing Sterling to tumble and the Dollar index to rise.

Monday did not bring any significant releases from the macro front. Investors mainly focused on politics and central bank speeches. On Monday, ECB president, Mario Draghi, confirmed during a speech that interest rates are not going to move before the summer, while also saying that although trade protectionism is the main risk to the economy, it won’t save the QE programme.

Today we await production data from the UK, ZEW sentiment indices from Germany and the Euro Area and JOLTS report from the US. Apart from the data releases, investors are still likely to focus on the political developments in the UK, as well as, any information regarding changes to global trade.