Sterling was stuck near five-month lows yesterday as Boris Johnson’s lead was cemented by the latest round of voting by Conservative MPs. He gained 126 of 313 votes with the difference being relatively evenly split between the remaining five candidates, with Dominic Raab being removed for having the lowest number of votes. Sterling was up 0.1% against the dollar and was unchanged by the results.
Despite this, some analysts believe that fears of a no-deal at the end of October are being exaggerated and the more likely outcome is an extension in October to have a general election. Overall sentiment towards the pound is quite fragile and recent optimistic comments from the Bank of England have done little to dispel the clouds hanging over the British currency. A few indications of a slowing economy have also helped to weigh it down. Today’s policy meeting is likely to see no change in interest rates.
GBPUSD opened at 1.2536 and remained relatively flat for most of the day, jumping very slightly in the late afternoon to close at 1.2549
GBPEUR opened at 1.1155 and rose sharply in the morning, rising more slowly in the afternoon to close 1.1206
The dollar was also little changed on Tuesday as traders awaited the Federal Reserve’s policy announcement on today. The Federal Open Market Committee began its two-day meeting on Tuesday and will issue a statement today when the session closes. Markets are expecting a dovish announcement, certainly with reference to increased risks due to the optimism of a US-China trade deal in April now having faded. The probability of a rate cut today is at about 24.2% with a higher 64.7% chance next month according to some analysts. The dollar index was 0.08% higher.
The euro weakened against the pound after the European Central Bank indicated a loosening of monetary policy. The single currency fell 0.21% against the dollar after Mario Draghi said that the ECB are looking at stimulus to assist the slowing eurozone economy. With interest rates already negative, and inflation falling below bank forecasts, the markets have perceived Draghi’s comments as dovish.
EURUSD opened at 1.1214 and fell to an early low of 1.1186, it was little-changed across the rest of the day, closing slightly higher at 1.1201
