On Tuesday, the British pound has been falling for the third day in a row, discouraged by a stronger dollar and fears that the new prime minister, whose name will become known later, will withdraw Britain from the European Union without a trade deal with the bloc.
The result of the Conservative Party election will be announced just after 10.00 GMT, with Brexiteer Boris Johnson widely expected to have beaten foreign minister Jeremy Hunt. The winner will become prime minister on Wednesday.
Johnson has declared that the Oct. 31 Brexit deadline is set in stone and Britain will leave the EU then even if no transitional trading arrangements are in place.
That belligerent tone has taken sterling 2% lower against the dollar this month, it has depreciated 11 weeks out of the past 12.
However, given Johnson is the overwhelming favorite to win the contest, a big sterling move after the announcement is seen as unlikely, with a greater focus on the new prime minister’s first speech in office and cabinet appointees.
Also, a slew of ministers who disagree with Johnson’s hard Brexit stance, including chancellor Philip Hammond are expected to resign, which should pressure the pound lower.
The pound fell 0.3% versus the dollar in the early morning at $1.2441, heading back towards recent two-year lows of $1.2382, battered also by a surge in the dollar.
Against the euro, it was down 0.2% at 89.97.
Recent weeks have seen investors sharply cut back on sterling positioning, with short positions growing to a 10-month high in the latest week, based on Commodity Futures Trading Commission data.
Sterling has also come under pressure in recent weeks from signs the Bank of England may backtrack on its earlier policy tightening signals. Michael Saunders, a policymaker who has talked in recent months about the likely need for higher borrowing costs, was quoted as saying by Bloomberg that Brexit might stop the BOE from raising interest rates.
Forex trading recommendations:
EURUSD:Buy. Entry point – 1, 1191. Take profit – 1, 1208. Stop Loss – 1, 1162.
GBPUSD:Buy. Entry point– 1, 243. Take Profit – 1, 2457. Stop Loss – 1, 2383.
USDCAD:Buy. Entry point – 1, 3135. Take Profit – 1, 3151. Stop Loss – 1, 3108.
