The Tory leadership race was cranked up a notch during last night's live television debate, following former Brexit secretary Dominic Raab’s elimination earlier in the second round of voting.
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The remaining candidates took to the stage to press their claims to become the next Prime Minister, with Boris Johnson coming out on top once again, with 126 votes in the ballot. This was 12 more votes than in the first round of votes, cementing his place as the front runner for number 10.
Jeremy Hunt, Michael Gove, Saijid Javid & Rory Stewart also got enough votes to make it through but Raab fell at the second hurdle, falling three votes short of the required 33. Raab had earlier called for the UK to leave the EU without a deal on October 31st if necessary.
The pound showed little reaction to the debate, having earlier regained some ground against the EUR following President Mario Draghi’s dovish press conference, but failed to impact above the interbank rate of 1.12 against the single currency.
GBP/EUR Interbank rates had earlier slipped close to a six-month low, whilst GBP/USD rates are slipping dangerously close to the near 30-year lows we saw post Brexit. With the pound now fighting to hold its position above the interbank level of 1.25 against the dollar, this threshold could likely prove key in determining how the pair evolve over the coming weeks.
The pound has seen it losses soften against the commodity-based currencies, primarily due to the slowdown in global growth which has caused these riskier assets to be sold off, but there has still be an obvious slippage against the AUD, NZD & CAD.
This proves that the current market sentiment surrounding the UK economy, and ultimately the pound, remains extremely dovish.
Those clients holding the pound may be looking at its current decline with some trepidation, and whilst the current outlook is unlikely to instil a huge amount of confidence in a sudden recovery, there are of course other variables to consider.
The UK economy is currently fighting a wave of negativity, with the UK’s current political situation adding to the economic instability already brought about by a lack of forward momentum with Brexit.
However, with Boris Johnson now the clear favourite to be the next prime Minister, his clearer mandate on either a revised deal, or even a potential no-deal may lead to some clarity over which direction the UK is likely to take, ahead of the EU revised Brexit deadline of October 31st.
Of course, even the prospect of a no-deal Brexit has historically proven to have a negative impact on the pound, but with Johnson stating that he thinks this is still unlikely, it may be that an element of calm is brought to the markets, if and when he takes up his position in number 10.
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