The Pound Sterling was on the back foot on Tuesday once against after investors started to worry more than ever before with Boris Johnson being the favourite to become the United Kingdom’s next prime minister.
If Boris Johnson is to become the prime minister, then the likelihood is that he would trigger a “hard Brexit” from the European Union, which is seen by many as a massive risk for the whole British economy.
The euro experienced its lowest value in five weeks with there being growing expectations that the current European Central Bank President, Mario Draghi, will be issuing a rate cut in September during a policy meeting which will be occurring later on this week, with the aim of keeping inflation expectations steady and on track.
The euro fell to $1.1191 for a short period, with this being the lowest since June 19, with traders waiting for Draghi to comment at a news conference on Thursday regarding the ECB’s policy meeting.
The New Zealand dollar experienced a similar period, with it falling in value after Bloomberg News reported that the country’s central bank is completely revamping its strategies for unconventional monetary policy, yet trading in other Asian currencies was kept under control, with investors waiting for some developments in the China and United States trading negotiations.
The dollar had a quite mixed period, with it rising in value against the yen, but on the other hand was restricted against other major currencies with there being expectations of a United Stated Federal Reserve rate cut in the coming week.
According to traders and analysts, the speculation surrounding the likelihood of there being a no-deal Brexit and questions about the extent to which major central banks will be loosening monetary policy will all determine the currency markets of the coming weeks, setting the tone for a possible no-deal Brexit scenario.
Takuya Kanda, the general manager of research at Gaitame.Com Research Institute in Tokyo, stated that “In the short term, further declines in the pound could be limited because positions are already very short. In the medium term, sentiment for Sterling will remain soft.”
The pound reached the value of $1.2459, which is very close to the 27-month low that it reached last week of $1.2382, the lowest since Theresa May invoked Article 50 of the Treaty on the European Union.
Whilst the dollar has thrived, the Sterling has fallen 3.7% against the dollar in the past three months alone, simply because of there being constant uncertainty about how Britain aims to try and avoid a possible no-deal exit from the European Union.
With the results of the British Conservative Party’s election being announced on Tuesday, there are even bigger worries that as Boris Johnson is expected to win, the chances of a no-deal Brexit will be larger than ever before.