The Pound is Forecast to Stay Weak by Analysts Reacting to Johnson's Cabinet Lineup, seen Consolidaing vs. Euro and Dollar Today
Above: Boris Johnson. © Pound Sterling Live. Still courtesy of BBC News
The British Pound is consolidating near month-highs against the Euro and other major currencies as markets await clear guidance on the Brexit strategy of incoming Prime Minister Boris Johnson.
Most currency analysts we have heard from say the rebound in the Pound witnessed over recent days is more of a technical move, inspired by profit-taking, rather than a fresh bet of confidence in the currency now that a new Prime Minister has taken office.
This does contradict the overwhelming media narrative at present that the Pound's bounce is because of Johnson's ascension into 10 Downing Street.
This argument is shaky: markets have known for some time that Johnson would inevitably take the keys.
There are risks ahead for Sterling, as there are opportunities, and for currency traders fresh triggers are therefore required to push the currency into a fresh trend either higher or lower.
In particular markets are on the lookout for clear signals on Brexit and a potential collapse of the Government as its one-MP majority leaves it vulnerable. Such an outcome would be negative for the Pound.
"The Pound is on shaky ground," says Martin Miller, an options analyst with Thomson Reuters. "Uncertainty reigns with the greater risk of an early UK general election or a no-deal Brexit now that Boris Johnson has become Britain's prime minister. He is conducting one of the biggest culls of senior government jobs in recent British history, changing all of the main ministers."
The selection by Johnson of a decisively pro-Brexit cabinet has raised the prospect of a General Election according to a noted currency analyst we follow, and this should keep enthusiasm towards Sterling muted.
"The appointments will both heighten concerns over a 'No Deal' Brexit and a snap General Election. With a wafer thin working majority, the government appears very unstable," says Lee Hardman, analyst with MUFG in London.
Following his appointment as Prime Minister on Wednesday, Johnson was quick off the mark to add some pro-Brexit names to cabinet that includes Priti Patel as Home Secretary, and Jacob Rees-Mogg as Leader of the House of Commons.
Noted Brexiteer Dominic Raab heads up the defence brief. Brexiteers have also come in lower down the Cabinet pecking order with Esther McVey taking the brief of Minister of State at the Ministry of Housing and Local Government.
"New PM Boris Johnson has clearly reiterated that the first aim of his government will be to leave the EU at the end of October with or without a deal. The composition of the new cabinet appears consistent with that aim," says Hardman.
However, it is the appointment of Dominic Cummings as one of his two most senior advisers, that signals Johnson's intent on delivering Brexit by October 31.
"The man who, perhaps even more than Mr Johnson himself, was responsible for persuading Britain to vote to leave the European Union has been brought in to spearhead the new prime minister’s pledge to deliver Brexit “do or die” in less than a hundred days," says Oliver Wright at The Times.
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Every political aide across the government will report to Cummings who will conduct the day-to-day, behind-the-scenes, business of delivering Brexit.
A friend of Cummings told The Times: “his mission is to deliver Brexit by October 31 with or without a deal. He is a Brexiteer first and a Conservative second.”
This appointment alone should keep markets alert on the very real prospect that the government will be trying to deliver Brexit by any mean possible. Expect Sterling to remain nervous.
"It was also notable that Dominic Cummings who was a leading architect of the vote Leave campaign has been appointed to a senior advisory role," says Hardman. "The continued political uncertainty should help to keep the Pound weak and encourage a further pick up in volatility in the coming months."
We sense that Johnson will make a concerted push to renegotiate the current Brexit deal, driving a hard line with the EU while keeping an eye on parliamentary arithmetic.
He also knows that at some point he must secure a larger parliamentary majority if his Premiership is to stand a chance.
Therefore, he might welcome the loss of a no-confidence vote and a snap General Election that would allow him to run on a ticket of delivering Brexit, arguing that he needs a strong mandate in the House of Commons to finally deliver.
He will also calculate that Labour will be damaged by their wish-wash stance on Brexit and are at a point of maximum danger.
This is probably a good strategic move in terms of political gain; but for Sterling the excitement will only likely lead to further declines as political uncertainty is ramped up to fresh highs.
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