UK politics holds the headlines for GBP volatility
Thursday 7 July, 2022
Daily Currency UpdateUK politics continue to hold the headlines for pound volatility as more than 50 resignations have been seen in the past 24 hours within Boris Johnson’s cabinet. The resignations total a number which has never been seen in UK government before.
Two senior Ministers resigned from their posts on Tuesday, Chancellor Rishi Sunak and Health Minister Sajid Javid, which prompted prime minister’s questions at midday yesterday. Tough questions at that time saw Boris Johnson defend his leadership, but this has only resulted in further resignations.
GBP/USD dropped to fresh lows on the news, touching 1.1877 around 1pm Wednesday. The pound has recovered some of these losses since, but still sits closer to 1.1900 this morning. GBP/EUR fell to a session low of 1.1630 early yesterday morning but gradually pushed back above 1.1700 over the day. This is most likely due to Europe’s inflation running at record levels and economic data pointing to a rapid slowing of economic growth in the region. Politics will likely hold the headlines again today as Boris Johnson tries to remain resilient amidst calls for his resignation.
Key MoversThe minutes of the June meeting of the US Federal Reserve were released on Wednesday and detailed the central bank's firm intent to get prices under control. According to the minutes, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the policy meeting later this month. The European Central Bank will also publish the minutes of its last meeting later on Thursday, at which the policymakers decided that a rate hike of 50 basis points would be appropriate in July.
Europe's inflation is running at record levels and surging energy prices suggest the upward pressure on consumer prices will remain substantial for a while longer. Economic data has pointed to a rapid slowing of economic growth in the region, with the latest example being German industrial production growing just 0.2% on the month in May, a drop from the 1.3% growth seen the month before. EUR/USD dropped to 1.0166 yesterday, which was last seen back in 2002. Small gains back for the euro still see the currency pair trading under 1.0200.
- GBP/USD: 1.1860 - 1.1980 ▼
- GBP/EUR: 1.1630 - 1.1770 ▲
- GBP/AUD: 1.7440 - 1.7610 ▼
- EUR/USD: 1.0140 - 1.0240 ▼