Boris braces for confidence vote
The main talking point to get straight into is the political update out of the UK today. A letter of no-confidence has been submitted to oust Prime Minister Boris Johnson and Tory MP's will hold a vote tonight on whether he is to be replaced. Political uncertainty hasn't been kind to GBP in recent years and so it would be best to plan for a worst case scenario in case the trend continues.
Despite the news, Sterling has managed to jump up today following the 2-day bank holiday and weekend. Personally, we are not surprised to see the bump after 4-days without UK liquidity in the market. However, UK politics and £ does not mix well. So overall we are a bit perplexed as to why Sterling isn't more on the back-foot.
There are a few arguments from economists as to why the Pound hasn't responded negatively to news. With a general election not planned until May 2024, a change of PM now may help with the polls after recent poor readings. A change in leader may improve EU relations. Nothing will change near-term economically after the Governments recent fiscal package announcement.
There is no doubt that tonight's vote will create market volatility, we just don't know how the market will respond to each outcome. So in these instances, we always suggest hedging any upcoming exchanges. Actually, the week as a whole looks tricky for the £. The EU publish GDP data on Wednesday which is an important factor in determining what to do with interest rates. Then on Thursday, we have an intriguing ECB meeting where the market is expecting a hawkish tone for raising rates in July.