Pound hits low point after election uncertainty

David Hobart

The British pound continued to be vulnerable to the ups and downs of the country’s politics on Monday and into Tuesday after politicians rejected Prime Minister Boris Johnson’s attempts to call a general election.

Johnson attempted to get an election through the House of Commons on Monday, but he failed to do so due to opposition from other political parties.

Now, however, it appears he may be able to work with some of those parties on a compromise.

He claims that the current parliament is paralysed by inaction over Brexit, and that a new parliament – elected in a poll held most likely in December – is needed.

The pound suffered in the forex markets as a result of the uncertainty.

It was seen heading towards its lowest point for ten days in its pair with the US dollar.

It was noted at $1.2817 in its pair with the dollar, and overall it was down by 0.3% compared to the rest of the day.

Compared to its high point of $1.30 last week, the new position for the pound meant it was truly in a slump.

In its pair with the single European currency, however, the pound was not particularly up or down.

It was steady at 86.35 pence.

It is now widely considered by analysts that the threat of a so-called no deal Brexit, which would see the UK leave the European Union without having trade agreements in place, has largely been averted.

However, there is still a risk that the Brexit deal may not get through parliament, and the result of any future election could determine whether or not that turns out to be the case.

*Update: Jeremy Corbyn says Labour will support an early election* 

Elsewhere around the world, foreign exchange traders were largely looking ahead to the arrival of a decision on interest rates from the US Federal Reserve tomorrow.

This decision looks set to reduce the headline interest rate in the US from its current position of 2% to 1.75%, although this has not yet been confirmed.

The dollar remained flat against a few other currencies.

In its pair with the euro, for example, it changed little and was seen at $1.1096.

In its index, which is a tool designed to track how the currency is performing compared to six others from across the globe, it was seen at 97.755.

The wider US context was looking positive, with President Donald Trump stating that an agreement between the US and China on the ongoing trade dispute could come in the next few days.

This also had a positive effect on the Australian dollar, which tends to rise during times of global trade certainty – especially where China, its major trading partner, is concerned.

The Australian dollar was seen at $0.6842 at one point.

The relative additional certainty also drove so-called safe haven currencies, such as the Japanese yen, down a little further.

In the USD/JPY pair, meanwhile, the US dollar was seen to rise to 108.96 yen to the dollar.

A little earlier, it managed to rise to its highest point in three months.


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David Hobart
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