The pound fell on Monday as Boris Johnson continued to look the most likely candidate to replace Theresa May as Prime Minister. Sterling dropped to a near six-month low against the dollar ahead of what investors are predicting will be conflict with the EU as Johnson has said the UK will leave on the 31st of October with or without a deal.
Johnson’s campaign received a boost yesterday when one of his former leadership rivals, Matt Hancock, threw his support behind Johnson saying he was “almost certain to win”. However rank outsider Rory Stewart’s campaign has been gathering momentum recently and he could throw a cat among the pigeons with some suggesting he could be beat well-known names such as Jeremy Hunt and Michael Gove into the head to head show down.
A median forecast put the likelihood of a no deal Brexit at 25%, up from 15% in May. The second round of the leadership vote is set for today, with any candidate with less than 32 votes being removed.
GBPUSD opened at 1.2583 and made slight gains in the morning, reaching just above the 1.26 mark before falling across the afternoon to close at 1.2559
GBPEUR opened at 1.1218 and after a brief rise, fell sharply across the day, closing at 1.1186 and hitting a low of 1.1173 late in the evening.
The dollar was relatively unchanged on Monday, staying near the two-week high it reached earlier in the session as investors were changing their minds about how dovish the Federal Reserve would be in this week’s policy meeting. Expectations of a rate-cut in today and tomorrow’s meeting have fallen to a probability of 20.8% according to some analysts, but these remain at a higher 68% chance for July’s meeting. The dollar index hit a two-week high early on Monday at 97.603 but settled back to 97.573 at the end of the day.
The euro was marginally up as investors awaited comments from policymakers at the European Central Bank meeting in Sintra, Portugal. Analysts are specifically waiting to hear from Mario Draghi who will shed some light on the strategy to deal with economic downturn. Later today, Eurozone inflation data will also be released that investors are watching closely, believing it will be lower than the central bank has forecast. Elsewhere, the safe-haven Japanese yen was slightly stronger against the dollar, up 0.06%.
EURUSD opened at 1.1211 and rose sharply in the late morning, reaching a high of 1.1241 before sliding back down for the rest of the day to 1.1231
