The British pound is shaking off a looming no-confidence vote in premier Boris Johnson, but analysts say sterling still looks pretty weak
(Photo Illustration by Dinendra Haria/SOPA Images/LightRocket via Getty Image
- The British pound rallied on Monday, despite an upcoming vote of no confidence in Boris Johnson later in the day.
- Sterling gained 0.5% against the dollar and 0.6% against the euro on Monday.
- Analysts predict that the pound will fall if Johnson loses the vote in the UK parliament.
The pound rallied broadly on Monday, apparently shaking off political turmoil as Prime Minister Boris Johnson faced a vote of no confidence later in the day.
At least 54 Conservative members of Johnson's own party submitted secret letters of no confidence triggering the vote in his leadership.
"The threshold of 15% of the parliamentary party seeking a vote of confidence in the leader of the Conservative Party has been exceeded," Graham Brady, the senior Conservative backbencher overseeing the process said in a statement.
It comes ahead of controversial plans to send asylum seekers to Rwanda, and the so-called Partygate scandal in which Johnson and political figures around him broke rules to hold parties in the midst of UK coronavirus lockdowns.
In terms of what the vote could mean for the pound, Giles Coghlan, chief analyst at HYCM told Insider: "If Johnson is unseated, investors can expect the pound to fall initially, without any clear replacement in mind for PM. However, if the view of a named replacement figure is received positively, we could potentially see the pound whipsaw."
At 10:31 ET, sterling gained 0.4% against the dollar to trade at $1.253 and rose 0.5% against the euro to trade at 85.31 pence. But the pound was still close to its weakest in a month against the single European currency.
Analysts at Rabobank echoed the pound's overall weakness against the euro saying: "EUR/GBP has never returned to its pre-Brexit referendum levels and the softer pound since mid-2016 tallies with the weak investment data in that period."
Other analysts were similarly downbeat about the pound's longer-term prospects.
"The pound remains vulnerable in the short term given worsening growth prospects and a potential re-pricing of BoE rate expectations," strategists at ING said.
With the UK facing its strongest inflation in 30 years, the Bank of England hiked interest rates last month by 25 basis points to 1%. The country's central bank predicted inflation will soar above 10% in October while also warning the UK economy could tilt into a recession next year.
The bleak outlook brings together a perfect storm including red-hot inflation, economic disruption from COVID-19, and Brexit, which together left the UK economy almost flat-lining in the first quarter of this year, expanding by just 0.8% compared with the previous quarter when GDP grew 1.3%.
Analysts at Rabobank reinforced a negative outlook of the pound saying: "Insofar as the UK has a current account deficit, the GBP is more likely to be sensitive to a perceived deterioration in economic fundamentals that it would be otherwise."
Viraj Patel, FX & Global Macro Strategist at Vanda Research said he was generally bullish on the pound but pointed out that the currency looks vulnerable in light of the confidence vote.
"Boris Johnson 'no confidence' vote should be a non-event for $GBP markets. Only way it becomes an issue is if the risks of an early general election pick up. This would put $GBP on a slippery slope to 1.20. But slim chance any Tory leader calls a snap election given polling," he said in a tweet.
from Business Insider https://ift.tt/aFM57z8
No comments