Political Risk Affects Sterling in the Forex Markets

On Wednesday, fears over a “Hard Brexit” and a probable general election took a higher risk premium for all sterling assets in the forex markets. In addition, the British pound plunged to its lowest in more than two years in early trading in Europe.

In a news report, Boris Johnson called for a general election, as early as next year.

He was selected and much preferred to win the Conservative Party leadership contest and take over as Prime Minister.

The election, as suggested from the opinion survey, would not provide any party a clear majority.

Furthermore, despite a deal causing cushion to setback the U.K.’s economy, Johnson has sworn to take Britain out of the EU.

On Tuesday, in the forex markets, the pound slid nearly 1% against the dollar, and its decline continued until Wednesday.

For the first time since April 2017, recording a high of $1.2393, and declining $1.24.

Moreover, sterling in the forex markets weakened versus the euro, before surging to 1.1058.

Sterling has plunged as much as 1.1047, its lowest since September 2017.

In a note to clients, CEO of the consultancy Blonde Money in Oxford, indicated, “We expect GBP can fall even further, even quicker from here, with volatility rising as it does so,”

She also added, “And all because the truth is dawning, we are headed to No Deal, and we are about to get a new Prime Minister with an entirely new way of managing the process. Sure, he might fold in the end. But equally likely, he might not.”

Meanwhile, U.K. consumers released data about producer and house prices and sterling faces another test.

As the EU’s new president stated a sanction of Ursula von der Leyen, the euro is also under some pressure.

Approved Appointment of Von der Leyen in EU

The nomination of Von der Leyen was approved by a majority of less than 10 in the EU parliament.

The vast number of uncontroversial delegates in the parliament rebuffed to vote for her as presented in the voting numbers.

It’s a sign of difficulties that may be experienced in relevant legislation by a more uneven parliament in the next five years.

The improvements versus the pound and euro drove the dollar index.

The dollar index, which traces the greenback against a basket of developed-market peers to 97.088, its peak in a week in the forex markets.

Furthermore, by reviewing, a fraction was in 97.037.

Markets have come to see a 25-basis point cut as a done deal because the dollar owed some of its strength to comment from San Francisco Fed president Mary Daly.

Mary Daly also told news reports that she wasn’t “leaning one way or the other” refers to an interest rate cut at the Federal Open Markets Committee assembly in two weeks’ time.

Meanwhile, the dollar was stable on Wednesday after positive U.S. data strengthened the expectations of aggressive policy easing by the Federal Reserve this month.

The June U.S. retail sales data decreased the possibility of 50 basis points than 25 basis points.

Moreover, it has increased the dollar at its month-end policy review.