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Pound inches a little higher as Johnson takes office, what’s next?


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Cable rises to a high of 1.2482 as Boris Johnson wins the Tory leadership race


ForexLive

The pound reaction was a bit muted initially but we’re seeing a bit of a move higher now as further short covering persists upon the announcement that Boris Johnson is the new UK prime minister. Cable has risen from 1.2460 to 1.2482, just shy of the 100-hour MA (red line) after having bounced between 1.2455-65 when the result was announced.
To be fair to the pound, the “move” started when price hit a low of 1.2418 on the day and that is when we see shorts covered ahead of the event. It’s very much part and parcel of a “sell the rumour, buy the fact” kind of play.
Hence, that is why there’s a bit of an underwhelming feeling in the immediate aftermath here.
Looking ahead, if this is just about as good as it can get for the pound on short covering, then I reckon there will be troubling times ahead.
For some context as I posted on our Twitter feed, Boris Johnson is entering into office with no clear parliamentary majority, a currency that is basically falling off, an economy on the brink of a recession, and with his own party looking to block his no-deal Brexit plan.
That doesn’t sound very convincing for the outlook over the next few months. The first point in his Brexit plan is to head to Brussels to renegotiate the withdrawal agreement but we all know how that is going to turn out.
Perhaps the EU will offer him an olive branch but otherwise, I just don’t see how any gains in the pound from short covering after today to be sustainable in the long-run.

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