The pound to US dollar interbank rate dropped to a 2 year low and a 6 month low against the euro at the start of the week. Yesterday, the pound saw some light relief as figures released by the Office for National Statistics (ONS) showed that the UK economy returned to growth in May after contracting in April. The turnaround in May showed the economy grew by 0.3% compared to a decline of 0.4% the previous month.
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Though the news failed to really reignite the pound back to any headline levels, it appeared to halt any further declining losses for the pound. Only time will tell how long it will last, and going by the Pound’s previous steady decline since its last high at the start of May, it may be understandable for the lack of confidence in the currency for the foreseeable future, at the very least.
Despite the return to growth in May, concerns still persist that a recession in the UK could be imminent. June’s growth figures will need to be strong to avoid a contraction in the second quarter otherwise a UK recession could become a reality. This could furthermore put more pressure on the pound at a time when Brexit is already capping gains in the currency for the UK economy.
With less than two weeks to go until the Tory party officially name its next party leader, and with it, the next British Prime Minister - the third in 3 years. Boris Johnson continues to be the bookmaker’s odds on favourite for the top job. However, Brexit being both the leaders main objective, an initiative that will determine the next British prime minister, Jeremy Hunt remains confident he is the right man to lead the country. Tuesday night’s TV debate between the two candidates again failed to really give either side an added boost to their chances and therefore had little to no effect on pound sterling’s value.
Interestingly, former Prime Minister Sir John Major weighed in on the debate telling the BBC he would seek a judicial review in the courts if the new PM tried to suspend Parliament to deliver a No-Deal Brexit. Sir John went on to say that, such a move would be utterly and totally unacceptable. Boris Johnson is the only candidate that has refused to rule out the option of suspending Parliament to force through a No Deal. For parliament to be suspended, the acting PM would need to seek permission from Her Majesty the Queen. Surely any PM would want to avoid involving the Queen especially so early on in to their tenure.
We are yet to determine how serious Sir John’s threat will prove to be. What remains clear, is that, despite the Tory party getting their wish to force Theresa May out, the party remains divided. Whether it be Johnson or Hunt as the next Prime Minister in two weeks time, uniting the conservative party is going to be their first objective if a Brexit deal is to be agreed by the 31st October. Otherwise, the possibility of a No Deal will only intensify, with the pound likely to face increasing levels of pressure.
If you’re planning to make a transfer in the coming days, weeks and/or months and want to discuss how we can help you secure your purchase and eliminate the risk of the markets going against you please contact your account manager at Pure FX today.
UK economic data for the remainder of the week is thin on the ground; so expect Brexit to remain the main force behind sterling movements for the rest of the week.
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