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Pound Picks up as PM Uncertainty Fades

Market Analysis
2016-07-11_14-52-28

GBPUSD, Daily             

The next UK Prime Minister appears to Theresa May as her only opponent to be the next leader of the ruling conservative party, Andrea Leadsom, withdraws from the contest.  Mrs Leadsom was the last of the Leave campaigners to be in the running for the top job in UK politics, the UK votes for a Brexit and none of its leaders are left standing.

Sterling immediately responded positively on the news as cable spiked over 1.3000 before falling back and EURGBP tested the 0.8500 level. At the same time the UK100 rallied this morning to 6650 and officially entered a “bull market” having rose 20% since its most recent low of 5565 at the beginning of February.  The strong rally in the UK100 has a strong correlation to the fall in the value of sterling since the Brexit vote. Many of the companies within the UK100 earn most of their revenue in US Dollars, but report in UK pounds thus helping their immediate short term outlook.

Cable could recover from these 1.300 levels as the political situation in the UK continues to clarify itself. However, with the BoE MPC meeting this week and expected to announce a rate cut AND more quantitative easing, the stock market and bond market rallies are likely to be the main beneficiaries.

 

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Stuart Cowell

Market Analyst

HotForex

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