Home Daily Commentaries UK pound dominated by news of a new Prime Minister

UK pound dominated by news of a new Prime Minister

Daily Currency Update

Last week saw another tumultuous week for UK politics when, after just 45 days in office, UK Prime Minister Liz Truss resigned. This makes her the shortest serving UK PM in history. Liz Truss leaves behind a legacy of coming to office and causing a crashing market after the now infamous “mini-budget”, sacking her Chancellor who was also apparently a long term friend and neighbour, and then performing a U-turn on her mini-budget policies.

The GBPUSD rate traded at its lowest point on record after the initial revelation of that mini budget, but seems to now be making a move higher on the news that we could have a new Prime Minister announced as early as this afternoon, and potentially with it some political certainty for the first time in a while for the UK. Some are calling it a 'Rishi rally' with the prospect of the previous UK chancellor, Rishi Sunak, as the next Prime Minister, and the current front-runner. The pound was testing the 1.14 handle at the start of the trading week on the news, and the market is currently watching this news closely for confirmation this week. If, however, Penny Mordaunt secures enough votes from Conservative members today, the race will continue for the rest of the week until the final decision is announced on Friday. We could see some significant volatility for sterling throughout the week in this scenario.

Last week also confirmed the dire state of UK consumer confidence, which has been reported at a 50-year low. Britons fear a “web of uncertainty and turmoil” as spending cuts and further price increases are around the corner. This did little to dampen the pound, which has been dominated by political events.

Key Movers

The US dollar index hit a three-week-high last Friday at 113.942, however, on the same day, it quickly fell almost 2% in intraday trading, making a new three-week low last Friday as well. San Francisco Fed President Mary Daly said on Friday that the Fed should start planning for smaller rate hikes, clarifying it is not time to "step down" from significant hikes. She added, "… it should at least be something we're considering at this point, but the data haven't been cooperating." Her comments triggered a US dollar intraday sell-off last Friday.

USDJPY surged to a fresh 32-year high at 151.95 last Friday before it plummeted to the 147 level, which was a 3.6% rise for the yen within 1.5 hours. Nikkei reported the surge on the yen was caused by another intervention from Japanese authorities on the currency market, citing an unidentified person. It said that Finance Ministry Vice Minister Masato Kanda told reporters he would not comment on whether an intervention had taken place.

The EU agreed to press ahead with emergency action to address the energy crisis, with Germany yielding to pressure to pave the way for a temporary price cap on natural gas. On the ground, Russia struck Kharkiv, damaging industrial infrastructure, according to the regional governor. The European Central Bank's meeting on Thursday will be watched very closely for how the central bank deals with this from a monetary policy perspective. Chances are that red-hot inflation will be controlled with a significant interest rate hike, expected to be 75 basis points. However, ECB head Largarde's comments will be watched closely for what the bank anticipates to do next and how far interest rate hikes may have to go.

Expected Ranges

  • GBP/USD: 1.1280 - 1.1385 ▲
  • GBP/EUR: 1.1440 - 1.1625 ▲
  • GBP/AUD: 1.7820 - 1.8045 ▲
  • EUR/USD: 0.9765 - -1.012 ▼