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Boris Johnson Wins Conservative Party Leadership Contest amid Euro to Pound Exchange Rate Volatility

Euro to Pound Exchange Rate Fails to Advance on Brexit Jitters amid ECB Uncertainty

Despite confirmation that Britain’s next Prime Minister would be Brexiteer Boris Johnson, the Euro to Pound Sterling (EUR/GBP) exchange rate saw mixed movement on Tuesday’s session. Investors were hesitant to buy the Euro (EUR) ahead of Thursday’s European Central Bank (ECB) decision.

Following last week’s brief jump to a 2019 high of 0.9047, EUR/GBP looks like it may be in for another week of volatility.

EUR/GBP edged higher from 0.8962 to 0.8974 last week, and despite today’s mixed movement has been trending higher overall since markets opened yesterday. EUR/GBP trended close to the level of 0.8976 at the time of writing.

European Central Bank (ECB) easing and interest rate cut speculation continues to keep pressure on the Euro outlook, but the Pound (GBP) could be in for a bumpy week as investors react to changes in government.

Euro (EUR) Exchange Rates Unappealing on Expectations for Dovish European Central Bank (ECB)

Demand for the Euro has been poor in recent weeks, as German data has continued to fall short of expectations and indicate that the Eurozone’s biggest economy is still being negatively affected by the global economic slowdown.

As a result of the lingering signs of weakness, speculation has risen that the European Central Bank (ECB) could become more dovish on Eurozone monetary policy.

While markets don’t highly expect an interest rate cut from the ECB as soon as this week, it is increasingly expected that there will be at least one rate cut by September.

Speculation is also rising that the ECB could cut interest rates multiple times before the end of the year, as well as introduce other easing policy such as new quantitative easing (QE).

Pound (GBP) Exchange Rates Volatile as Boris Johnson Wins Conservative Party Leadership

Today saw the results of the Conservative Party leadership contest announced. As was widely expected, Brexiteer Boris Johnson won the contest and will become Britain’s Prime Minister within the coming days.

Johnson won 66% of the vote, which was held above Conservative Party members over the past month. His win was widely expected by financial markets and was not a notable surprise in any way.

Investors bought the Pound in a limited relief rally following the confirmation, but the currency’s movements were limited overall.

Markets are now expected to focus on the transition period of Prime Ministers, as well as how the government cabinet will change under Johnson.

Anxiety over how Johnson’s government will unfold is keeping pressure on Sterling, as Johnson has repeatedly indicated he could aim for a no-deal Brexit over a Brexit delay.

Euro to Pound (EUR/GBP) Exchange Rate Investors Await European Central Bank (ECB)

With Britain’s next Prime Minister confirmed, Euro to Pound (EUR/GBP) exchange rate movement may become more focused on Eurozone data and European Central Bank (ECB) easing speculation.

Key Eurozone data due in the coming days, including tomorrow’s Eurozone PMI projections from Markit, as well as Ifo’s German business confidence data on Thursday, could influence ECB speculation if it surprises investors.

If the Eurozone economy performed much more strongly this month than expected, the ECB may not take as dovish a stance on Eurozone monetary policy as markets currently expect.

The ECB’s July policy decision takes place on Thursday afternoon. Any surprising shifts in tone from the bank are likely to be particularly influential for Euro investors.

Of course, the Euro to Pound (EUR/GBP) exchange rate will also be heavily influenced by developments in UK politics and Brexit, such as how the new government cabinet is formed and what stances it is likely to take on the Brexit process.