Lee Hardman, currency analyst at MUFG Bank, notes that the GBP has rebounded over the past week and has been driven by a combination of broad-based euro weakness and a modest pound rebound after it was confirmed that Boris Johnson has become the new Prime Minister.
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“The price action looks like a classic case of buy the rumour, sell the fact. The latest IMM report revealed that short speculative pound positions had increased sharply in recent weeks ahead, and there may have been some profit taking following the announcement. However, we do not see a strong fundamental reason why recent pound gains should be sustained at this stage.”
“Brexit uncertainty and “No Deal” fears are both set to remain elevated remaining heavy weights on the pound. New PM Boris Johnson has clearly reiterated that the first aim of his government will be to leave the EU at the end of October with or without a deal.”
“It was also notable that Dominic Cummings who was a leading architect of the vote Leave campaign has been appointed to a senior advisory role. The appointments will both heighten concerns over a “No Deal” Brexit and a snap general election. With a wafer thin working majority, the government appears very unstable. The continued political uncertainty should help to keep the pound weak and encourage a further pick up in volatility in the coming months.”
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