Published: 13/07/2022 By ECAPThe Pound fell to its weakest position on the dollar in two years during yesterdays trading. Political uncertainty is beginning to be reflected in a weaker sterling, as markets prepare for a potentially prolonged Tory leadership contest. Nominations for the next Conservative leader have now closed, although the winner won’t be announced until for almost two month (5th September). Rishi Sunak, Penny Mordaunt and Liz Trust are now the front-runners according to bookmakers, although until the next leader becomes clear, we may continue to see a bit of fragility in the pound, as possible policy implications will be unknown. Next up for sterling will be the monthly UK GDP figures for May (out this morning). A reading in contraction territory would raise alarm bells about the possibility of a UK recession, and could provide an additional drag on GBP.
The euro effectively fell to parity against the US dollar yesterday, although it found decent support yesterday afternoon, and by the end of the London session EURUSD was trading higher than where it began it. There was actually a bit of confusion among market participants as to whether the milestone of parity had been reached. Firstly, the decentralised nature of the FX market, and the use of a different sample of banks when calculating exchange rates, can create minor variations in rates between providers. This led to slight discrepancies in parity timing among rate providers - Refinitiv showed 1.0000 at approximately 9:20am on Tuesday, with Bloomberg appearing to do the same at around 10:45am. While much of the market was proclaiming parity had been struck, the major news outlets were, however, reporting an official low later in the day of 1.00005 - a whisker above the key psychological level.