It may be second time lucky for incoming Prime Minister Rishi Sunak, but the wait from his first attempt wasn’t too long to endure. Following the withdrawal of leadership race competitor, Penny Mordaunt, he will be appointed as the UK’s youngest modern era PM by King Charles later today. As we wrote of recently, other candidates should they have been successful in the race to number 10 presented a risk to GBP. Their lack of time served in key offices of state could be seen as a further risk of political instability, something the UK has been beleaguered with over the past few months. Sunak has some of that experience serving as chancellor within Boris Johnson’s government following the resignation of self-proclaimed puppet Sajid Javid.
Sterling has not had a momentous relief rally so far following the news. The changeover of Prime Minister could allow some of the significant net short positioning behind GBP to be unwound as investors take profit on outflows to date from Sterling. Markets are not oversold GBP from a positioning perspective. Net open interest in GBP is well above its lows from earlier this year. However, markets have on the whole remained short GBP for well over a year now and it is possible that given some quiet from Westminster that Sterling could recover.
Rishi Sunak delivered popular and immensely expensive fiscal packages to support an economy imperilled by the pandemic. He has experience in this crisis era governance, however, the corner that the UK has backed itself into is one of austerity and fiscal restraint. How the incoming Prime Minister copes with this very different type of crisis, one which you cannot spend your way out of, will be watched closely by markets. Initially, the formation of his cabinet will be imperative with markets awaiting confirmation that Jeremy Hunt will remain serving as Chancellor. It is widely expected that he will having backed Sunak in his leadership bid and been relatively well received as Kwasi Kwarteng’s successor to stable the ship.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
EU Border Controls 26,000 respondents in 18 jurisdictions have spoken and 51% of them are dissatisfied with border controls and the level of immigration into the EU. Now that is a statistic that political parties across the EU should sit up and take notice of in the next two months in the lead up to […]
UK Trade Deals While there have been deals signed with Australia in 2021 and New Zealand in 2022, the past post Brexit years in respect of trade deals have been more about which deals have not been agreed that should have been rather than those that did get signed: Canada due to the UK refusing […]
Bank of England As expected UK interest rates were left unchanged following the Monetary Policy Committee’s meeting this week. The message is clear that the Old Lady will not be rushed into making hasty interest rate reduction decisions,and, given that inflation is still at 3.4%, the market sold GBP immediately after the announcement yesterday lunch […]