The pound has been under pressure this week, most likely due to political headlines suggest Boris Johnson is considering a General Election if he becomes the UK’s next Prime Minister. Boris is the favourite to become the next Primer Minister, so anything he says or alludes to could potentially affect the currency markets.
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Senior allies of Mr Johnson have told the Times newspaper that “while Jeremy Corbyn is still around” he will want to hold an early General Election. According to Sir Edward Lister, who will oversee Johnson’s first 100 days in office, plans to ramp up recruitment and pump money into the Conservative headquarters has begun in preparation of a general election, the Times have reported.
An early General Election could cause political chaos in the UK and could be a factor to the recent pound movement, the other being a rise in probability of a no-deal Brexit. Although this is all speculation for now, should a no-confidence vote by Conservative MPs against their Government transpire, Boris Johnson will have little choice but to face the public vote. Betfair are offering a 44% probability of a General Election in 2019 and Ladbrokes are seeing a 47% probability.
On the other side of the argument, the EU have signalled that they were willing to sweeten the Northern Ireland backstop in order to get Theresa May’s previous deal through UK Parliament. Maybe the prospect of a no-deal Brexit is forcing their hand?
Michel Barnier last night spoke to BBC Panorama and stated Theresa May and her ministers “never” told him during Brexit talks she might opt for a no-deal. He went on to say “"I think that the UK side, which is well informed and competent and knows the way we work on the EU side, knew from the very beginning that we've never been impressed by such a threat.”
Historically, the pound has seen fluctuations in the lead up to a General Election as there is heightened volatility from the potential of a regime change. To be kept up to date with currency movements and political updates, you may wish to contact the trading floor here at Foreign Currency Direct.
Unemployment for the UK has remained at an impressive 3.8% in the three months to the end of May, which is its lowest since 1974. Also, workers’ wage packets have grown much faster than expected, with a 3.4% annualised rise. This figure is up from 3.2% and also means a ‘real pay growth’ of 1.4% for the period. Higher wages are linked to increased demand in an economy and more pressure on inflation, which could have implications for the financial markets and interest rates.
With Boris Johnson pushing the likeliness of a no-deal Brexit happening higher, the market has gone from betting the Bank of England will lift interest rates by the year end to cutting the rates. Historically, if a country cuts its interest rates the currency may see movement so it would be sensible to keep an eye on this issue.
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