Pound slips with Truss on the brink
Thursday 20 October, 2022
Daily Currency UpdateThe pressure is mounting on UK Prime Minister, Liz Truss, as she fights to cling on to power amidst chaotic events in Westminster yesterday. After enduring a bruising Prime Ministers Questions, Truss's recently appointed Home Secretary, Suella Braverman, quit as it emerged that she had sent government information via a private phone. Braverman quit as a result, however her resignation letter laid bare the divisions in the Conservative Party where she issued thinly veiled criticism of Truss by saying: "The business of government relies upon people accepting responsibility for their mistakes. Pretending we haven't made mistakes, carrying on as if everyone can't see that we have made them, and hoping that things will magically come right is not serious polities. I have made a mistake; I accept responsibility: I resign."
There were rumours circulating last night that the Tory Chief Whip, Wendy Morton, had also resigned however this was later proven not to be the case. There were also reports of Tory MPs being manhandled into voting along party lines on a vote on fracking brought forward by Labour. It appears the Conservative Party are in disarray and GBP/USD has unwound the gains it has seen since Monday after new Chancellor of the Exchequer, Jeremy Hunt, abandoned Truss's economic plan. Financial markets don't tend to like uncertainty and with Truss on the brink this will likely create a headwind for the pound as there is no clear obvious replacement for her, and even with a change to current rules on how a new leader is chosen, it will still take weeks to put in place a successor should she be forced out. GBP/USD trades around 1.1225 with GBP/EUR at around 1.1470.
Key MoversAway from the chaos of Westminster, it has been relatively quiet on the data front from the States and the Eurozone. The projected path of interest rate hikes from the US Federal Reserve and rising Treasury yields has been the main talking point from across the Atlantic with a hike of 75bp priced into the US dollar at the Fed’s next policy decision scheduled for November 2nd.
From the Eurozone, ongoing discussions between member states to shore up energy supplies ahead of the winter is the main issue in the absence of any top tier data. From China we are still awaiting the latest GDP data which has now been pencilled in to be released overnight tonight. Also, USD/JPY has just broken above the key 150 level. Should the Bank of Japan look to intervene to strengthen the yen, by selling dollar reserves, then this could impact dollar strength across the board, however it is unclear whether the BoJ are going to implement this policy just yet. EUR/USD is a touch lower at 0.9780 this morning as stock markets open in the red.
- GBP/USD: 1.1100 - 1.1340 ▼
- GBP/EUR: 1.1370 - 1.1580 ▼
- GBP/AUD: 1.7800 - 1.8020 ▼
- EUR/USD: 0.9720 - 0.9870 ▼