The week ahead contains some important developments in British politics associated with possible movements on sterling exchange rates. Today is the conclusion of the Conservative leadership contest with Boris Johnson predicted to be the winner at 1 to 33 on to win, and Jeremy Hunt 25 to 1, according to betting odds website oddschecker.com.

Currency Pair% Change (Month)Difference on £200,000
GBPEUR1.41%€3,230
GBPUSD3.09%$7,420
GBPAUD4.37%AUD $14,152

We know Brexit news is most likely influencing the pound, and it will be no surprise to see the pound in focus this week as developments unfold. The results of the contest are due tomorrow, with the new PM taking up position on Wednesday, following Theresa May’s last PMQ’s (Prime Minister’s Questions) Wednesday lunchtime. The new PM will then give a speech around 5pm on Wednesday.

Sterling has been sensitive to Brexit news and the market perception of no-deal as increasing in likelihood, has seen movement on the pound , since the currency markets distrust the lack of clarity no-deal presents to business, trade and politics. With both candidates openly suggesting no-deal will remain an option the pound could be in for some volatility as any speeches are made and results announced.

How will sterling react to a new Prime Minister?

How will sterling react to a new Prime Minister?

Currency markets by nature like certainty and the appointment of a new Prime Minister opens many other potential scenarios. The House of Commons is fractured along many factions, including those supporting varying degrees of Brexit, and those opposed to Brexit. With the new Conservative PM having only a slim majority, he may like Theresa May, struggle to push forward legislation and Brexit plans.

It was reported in the Times over the weekend that up to 6 Conservative MP’s might defect, leaving the possibility of an immediate vote of no-confidence in the new UK Prime Minister as the current government has a very slim majority.

The Chancellor Philip Hammond has already made clear he will resign if Boris Johnson becomes the next PM.

With very little UK economic news this week, sterling exchange rates have lots of political headlines to contend with. Any clients with position to buy or sell the pound may wish to contact our team for more information on the market and your options.

What is a longer-term view on Sterling?

In a sign of the mixed messages in the currency market on Brexit, here are some forecasts from Dutch bank Rabobank from FX street. They see GBP/EUR near 1.15 (with 1 euro being worth 87 p) for Jan 2019, assuming an extension in October and no General Election. The same 6-month forecast on GBP/USD sees 1.30. Rabobank also put a no-deal Brexit at parity on GBP/EUR and GBP/USD at 1.12. The Dutch bank also lists a forecast for a deal in the next year to see 1.2048 (1 euro buys 83 p) and GBP/USD to hit 1.39. Rabobanks central forecast is that Brexit will be delayed beyond October. This all shows the wide range of outcomes possible on Brexit and the possible effects for sterling rates against the euro.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.