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Sterling Declines Against Dollar Over Economic Concerns

On Friday, the British pound declined against the US dollar, as the macroeconomic backdrop was quite unfavorable and managed to overshadow the concerns about the political situation in the country, after the resignation of Prime Minister Boris Johnson.

New premier coming soon

Boris Johnson’s spokesperson stated on Friday that instead of changing decisions that had been made previously, the British government would continue to deliver the policy that had already been agreed upon.

According to lawmakers who are familiar with the matter, the Conservative Party plans on having a new prime minister selected in early September, once the summer break of the parliament comes to an end. Market analysts said that the resignation of the prime minister cannot change the macroeconomic reality for Britain.

The household costs in the United Kingdom have been rising and there is a slowdown in economic growth, which are challenges that can test any future prime minister. But, they did add that since political uncertainty in the near term would be removed, this could provide some support to the sterling. However, they added that rallies could be considered an opportunity to sell the British pound.

The pound declines

There was a 0.2% decline in the British currency against the US dollar, which saw it come down to $1.2005. The currency had hit its lowest value on July 6th at $1.1877, with such lows last recorded in March 2020.

As far as the greenback is concerned, it remained flat after US jobs data showed that more jobs had been created in June than expected in the largest economy in the world. This cemented expectations of another rate hike by the US Federal Reserve of 75 basis points in the meeting scheduled later this month.

With Johnson’s resignation, there is no longer any risk of a no-confidence vote that had been threatened by the opposition Labour party, which means there would not be any snap elections.

Sterling and the euro

It was not just the dollar that was a problem for sterling, as the currency was also 0.2% down against the euro. It was trading at a value of 84.48 pence after it had reached 84.425 on Friday in the Asian trading hours. This was its highest value seen since May 23rd.

The euro declined to a low of 2 decades, as Europe appears to be dealing with multiple problems. The continent has become vulnerable to a number of risks because of its dependence on Russia for energy. The bond markets in the area of the single currency are also vulnerable to fragmentation and the cost of living is also on the rise. All of these have put the euro under a great deal of pressure.

According to analysts, most of the potential prime minister candidates may opt for a less hawkish stance regarding the trade relationship of Britain with the EU and Brexit. The pound has suffered losses several times this year due to the risk of Brexit troubles with the European Union, especially because of the Northern Ireland protocol.

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