Sterling has rebounded in the wake of Boris Jonson formerly taking office today, with GBP/USD back to 1.25 and GBP/EUR up 0.6% from 24 hours ago to a one-month high of 1.1215. A case perhaps of sell the rumour, buy the fact.As expected there have been a number of further ministerial resignations and appointments as the new prime minister cobbles together his new cabinet and inner circle.
The most notable albeit expected resignation was that of Chancellor of the Exchequer Philip Hammond, who has been vocal in his criticism of a “no-deal” Brexit. The new Conservative leader’s most eye-catching, and arguably controversial appointment so far is that of Dominic Cumming as senior adviser and likely joint chief of staff. Cummings, the former director of the official Vote Leave campaign, has in the past been critical of both Theresa May’s decision to trigger Article 50 and of hardline pro-Brexit MPs.
Sterling’s rally has ultimately been very modest and needs to be put in context. GBP/USD is still within touching distance of a 32 week low and GBP/EUR is still down 4.5% from early May. Moreover, the up-tick in GBP/EUR has more to do with Euro weakness than Sterling strength, with EUR/USD down to 1.114 – its lowest level since end-May.
Weak Eurozone macro data have forced the ECB to become more dovish which has in turn seen markets up their expectations of ECB policy rate cuts and weakened the Euro. Composite manufacturing PMI data for the Eurozone, released today, are the latest indication that the modest pick-up in economic activity in Q2 may have proved short-lived. The Eurozone PMI for the manufacturing and services sector, which had risen from 51.5 in April to 52.2 in June, fell back to 51.5 in July, dragged down in part by very weak German numbers.
