Sterling remained near its four-month lows on Tuesday with the outcome of last week’s European election seen as giving fuel to those Conservative party leadership contenders who are pushing for a hard Brexit. The Brexit Party gained the most seats and the Conservatives were pushed into fifth place.
Foreign Minister Jeremy Hunt said no-deal Brexit would amount to political suicide however other candidates, including favourite Boris Johnson, have said the UK must be prepared to leave without a deal. Sterling is feeling the effects of the increased likelihood of no deal however downside risk has been limited by the fact that parties opposing Brexit also made strong gains in the European elections. With the government’s lack of majority, any lawmaker opposed to a no-deal Brexit could call a vote of no confidence in any Prime Minister who tries to go down that route, which could then trigger a snap election.
Some analysts have also said the results of the elections mean that a second referendum is now more likely based on the increased number of votes for remain parties, however the default scenario remains leaving the EU without an agreement.
GBPUSD opened at 1.2666 and was almost unchanged across the day to close at 1.2664
GBPEUR opened at 1.1323 and dropped sharply in the morning to a low of 1.1314 and then picked up again for the rest of the day to close at 1.1341
The US dollar edged higher against a basket of currencies on Tuesday as political worries and a strong rise in consumer confidence gave a boost to the greenback. The index that tracks the dollar against the euro, yen, pound and three other currencies was up 0.2%. President Donald Trump has indicated the US and China are far from a trade deal which increased demand for safe-haven currencies.
The euro slipped against the dollar as investors were relieved that pro-European parties won a majority of European parliamentary seats, but they remained uncertain bot the future of the economic bloc as Eurosceptic and right-wing parties gained seats. European leaders will now meet in Brussels to begin the process of filling the top EU posts.
EURUSD opened at 1.1186 and remained flat until the early afternoon before dropping down to close at 1.1164