Sterling
The Pound avoided further losses yesterday – having initially gotten off to a bad start – as markets reacted positively to news that Tory leadership candidate Andrea Leadsom had pulled out of the running to be Prime Minister. The move means Theresa May will take over from David Cameron as PM on Wednesday. Sentiment improved following the announcement because investors no longer have to worry about a summer leadership contest. It is also believed that May, who backed ‘Remain’ ahead of the referendum, is better placed to arrange a new trade deal with the European Union than any of the other candidates.
Euro
The Pound to Euro exchange rate rose by around a third of a cent yesterday following news that Theresa May would become British Prime Minister on Wednesday, around two months earlier than if the Tory leadership contest had taken place through the summer. The result had previously been expected to be declared by September 9.
Although May backed the ‘Remain’ camp she has since employed the mantra ‘Brexit means Brexit’ and has vowed to ensure that Britain does in fact leave the EU. However, her experience in the cabinet and her initial pro-EU stance soothed market fears and raised hopes that the UK will remain part of the single market post-‘Brexit’.
US Dollar
The Pound to US Dollar exchange rate rose minimally yesterday as investors reacted positively to news that Britain would have a new PM much sooner than initially expected.
However, the prospects for GBP/USD don’t look great because the Bank of England is expected to cut interest rates this Thursday and potentially restart its asset-purchasing QE scheme in the near future. Most analysts predict a 25 basis point rate cut this week, which could easily drive ‘Cable’ to a new three-decade low. A sharper 50-point rate reduction would likely have an even more dramatic downward impact on the Pound.
Canadian Dollar
Sterling strolled higher by around 120 pips yesterday against the Canadian Dollar as oil prices slumped. The commodity-correlated ‘Loonie’ relies heavily on capital inflows into its lucrative oil industry, so news that crude sank to a two-month low was enough to prompt a devaluation of the Canadian Dollar yesterday.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around a cent yesterday following the unexpectedly early conclusion to the Tory party leadership contest.
New Zealand Dollar
Sterling rebounded from a three-year low to appreciate two cents against the New Zealand Dollar yesterday. However, it is entirely likely that we could see GBP/NZD give up these gains by Thursday afternoon if the BoE does in fact slash interest rates as expected.