Pound Euro Exchange Rate News: GBP/EUR Wavers after Boris Johnson Resigns as Prime Minister

July 8, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavers after Boris Johnson Resigns as Prime Minister

Pound (GBP) Wavers amid Ongoing Political Uncertainty

The Pound (GBP) initially strengthened after news broke of Boris Johnson stepping down as Prime Minister. However, Sterling is seen wavering today as political uncertainty still remains. With expectations of Johnson stepping aside immediately following the resignation of more than 50 Tory MPs, Johnson himself declared he intends to stay on until a new leader is elected.

However, most of his own party want him gone sooner, as does Sir John Major, former Conservative Prime Minister, who said:

‘The proposal for the prime minister to remain in office - for up to three months - having lost the support of his cabinet, his government and his parliamentary party is unwise, and may be unsustainable.

In such a circumstance, the prime minister maintains the patronage and, of even greater concern, the power to make decisions which power of will affect the lives of those within all four nations of the United Kingdom and further afield.’

Investors will be hoping for a swift resolution to the matter, as a new Prime Minister can usher in a new era, one hopefully free from distracting scandals, and one that can focus on the UK’s economy. Until a new leader is in place, and Johnson is gone, the political instability could continue to weigh on the Pound.

Elsewhere, Bank of England (BoE) policymaker Catherine Mann continued her hawkish rhetoric and argued yesterday that the uncertainty surrounding inflation strengthened the case for aggressive rate hiking. A 50bps interest rate hike would reduce the risk of domestic inflation being compounded by a struggling Sterling.

Mann said: ‘I open the door to a policy rate reversal in the medium term when the domestic supports to demand fade and when weakness in external sources of demand bite.

‘It is important to react in a timely fashion to a US monetary policy shock that causes the UK price level to jump.

‘If near-term inflation is the dominant concern, then the activist path addresses that.’

The Pound could be boosted if the BoE adopts a more hawkish approach to taming inflation.

The Euro (EUR) Continues to Falter as Gas Security Fears Heighten

The Euro (EUR) is struggling for demand again today as global recession fears weigh on looming gas security concerns.

With the Ukraine invasion continuing, and peace talks have never been further away, heightening concerns of a looming gas crisis weigh on. Gas prices are already seen at astronomical levels, on top of soaring inflationary pressures.

Concerns of Russia cutting gas supplies off to Europe in Winter are growing. If such a move was taken, which is increasingly likely, an incredible amount of economic damage would be felt across Europe.

Meanwhile, hawkish minutes from the June policy meeting showed that increasing inflationary pressures might force their hand in being more aggressive with rate hikes. But this failed to rally investors as concerns remain of fragmentation in the Euro zone, which could lead to financial instability in Europe.

GBP/EUR Exchange Rate Forecast: ECB Speech to Ease Fears for the Euro?

Looking ahead, with no data for the remainder of the day, the Pound Euro exchange rate could see further movement on market sentiment alone. With the turbulent political situation in the UK, and the looming gas crisis in the Eurozone, on top of inflationary fears and recession concerns, fluctuations could be expected.

Meanwhile, ECB President Christine Lagarde is delivering a speech today. Investors will be waiting for any further clues as to how the ECB will tackle inflation going forward.

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TAGS: Pound Euro Forecasts