The recovery of the pound continues: it is already 400 pips above the pre-Leadsom quit lows of 1.2850. At current levels, we are back to a line that provided support to the pair before the big plunge that came with the withdrawal freeze of property funds. The line held nicely was 1.3240.
Theresa May is about to receive a sterling greeting when she enters 10 Downing Street tomorrow, assuming this trend continues.
We wrote earlier today that this could be a sell opportunity. Well, so far it has proven totally wrong as this surge shows. However, there is still a chance that the BOE will cool this rally down on Thursday.
Mark Carney and co. are set to announce some kind of stimulus now and more in August, once they have their fresh quarterly report off the press. Any steps, QE, rate cuts or both, could weaken the pound.
Currently it is a balance between looser monetary policy, pound negative, and political uncertainty. Politics have improved quite a bit with the quick resolution of the Conservative contest. However, incoming PM Theresa May is serious on respecting the vote and implementing Brexit. When will Article 50 be triggered? What will be the nature of the transition period? What deal will the UK get afterwards? These are all open questions.
Here is the chart:
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