The pound is among the top perfomers on Monday and EUR/GBP dropped below 0.8550, on the day PM Boris Johson will face a confidence vote. According to analysts from Rabobank whether or not Johnson remains in his place, “GBP investors will be hoping it will clear the air and allow government to move on with the job in hand”.
Key Quotes:
“GBP is the best performing G10 currency on a 1 day view as the news of a confidence vote in PM Johnson gives way to hope that UK politics could be on the bring of pushing beyond scandal and distraction.”
“The Tory party did not perform well at last month’s local elections and there is speculation that two approaching by-elections could further highlight voter dissatisfaction with the government.”
“While the pound has found some support this morning on the hope that today’s confidence vote could clear the air and result in more directional leadership for the UK government, we see GBP as still undermined by UK fundamentals. Insofar as the UK has a current account deficit, the GBP is more likely to be sensitive to a perceived deterioration in economic fundamentals that it would be otherwise. EUR/GBP has never returned to its pre-Brexit referendum levels and the softer pound since mid-2016 tallies with the weak investment data in that period. We retain a 3 month forecast of EUR/GBP0.86.”