GBP: Guided by the UK politics - Westpac

Tim Riddell, analyst at Westpac, points out that the UK PM May is now officially resigning on 7th June as the trouncing of both major parties in EU elections last week reflected the polarisation and frustration of UK’s populace as they voted for either the Brexit Party or remain Greens and Liberal Democrats.

Key Quotes

“Debate is now around how hard-Brexit May’s replacement will be and whether a second people’s vote on Brexit might be held.”

“GBP’s most recent weakness has been driven by UK’s political impasse and concerns that the replacement for May would be a hard Brexiteer. Now that the selection process has started, the big surprise for markets would be Boris Johnson failing in the parliamentary balloting system and a more moderate leader emerging. The selection process should complete by 20th July.”

“In the interim, Lloyds business and GfK consumer surveys are due prior to Markit’s PMI. Retail activity has remained firm, so another surprise for markets and GBP would be stabilisation in the surveys. GBP/USD might now define support around 1.2500 but upside potential will be limited.”