Does Boris mean bad news for cable?

Forex

The UK is less than a day away from finding out who the next Prime Minister will be. The winner of the Tory leadership contest will lead the UK in its exit from the EU later this year, and Boris – who has refused to rule out closing Parliament to secure a no-deal Brexit – is favourite to win.

Cable is unsurprisingly jumpy on the topic of Brexit, and it pushed higher last week when MPs made it harder for the future PM to force through a no-deal Brexit by suspending Parliament.

The new bill states that even if Parliament is suspended, it must sit for a few days in September and October to consider issues in Northern Ireland. It also requires ministers to make reports every fortnight on progress towards re-establishing Northern Ireland’s collapsed, devolved executive and to give lawmakers an opportunity to debate and approve those reports.

While the legislation would not prevent a Parliament being suspended, it would make it harder to sidestep lawmakers.

Already Decided?

A poll of Tory members suggested that Boris has two-thirds of the vote. More than half of those who voted Conservative in the last general election would vote for Boris, compared to just 27% for Hunt. Voting is currently taking place and closes at 5pm today, with the winner expected to be announced tomorrow.

However, Boris is the firm favourite to win and, barring something spectacular, will take over the reins as Prime Minister on Wednesday. So, while markets are likely to react to the news, it’s likely that much of the turbulence has already been factored in.

What to expect

The pound is already weaker, with cable losing about 50 pips today in morning trading.

Concerns about Brexit – and, therefore, the leadership contest – continue to drag the currency down. GBP/USD had started the session north of 1.25 but was last making new lows around 1.2460. It’s likely that if hard-brexiteer Boris is announced as the next PM, sterling will take a knock.

However, leading thinktank National Institute for Social and Economic Research (NIESR) has warned that the dampening impact of Brexit over the last three years could have dragged the UK into recession already.

Overall, the think tank sees a 30% chance Sterling will decline over the course of 2020, and that probability will be higher if Britain crashes out of the EU.

Even if a no-deal Brexit is avoided, NIESR predicts the economy will grow just 1.2% this year and 1.1% next year as uncertainty about Britain’s future trading relationship with the bloc will hold back investment and slow growth.

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