Beyond Currency

The battle to become the Prime Minister has entered its long final straight as Rishi Sunak and Liz Truss have become the last two candidates standing.

Both believe that they have a strong case with Sunak pointing to his record as Chancellor of the exchequer, his first Cabinet post to prove his credentials, while Truss believes that she has the strong support of the right wing of the Conservative Party.

The newspapers are building a degree of antipathy between the two into their rivalry, mostly driven by their performance at the second of the televised debates and their apparent refusal to take part in a third, apparently each fearing the other’s ability to draw them into a dogfight.

Current Prime Minister Boris Johnson attended his final Prime Minister’s questions in Parliament yesterday as he returned to the persona he had when he was first voted into the role.

Members of the Conservative Party will now be balloted and the decision on a winner will be announced on September 5th.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Bank of England Governor Andrew Bailey, speaking at a dinner on Monday evening, gave the clearest indication yet of the Bank’s intention to hike interest rates by fifty basis points at its next meeting, which will take place on August 4th.

This will be the biggest move in twenty-seven years, but Bailey is determined to show how serious he is in trying to bring inflation back to the Government’s two percent target.

He believes that it is the absolute priority to bring it under control, and that this is the largest challenge since the Bank was granted independence by then Chancellor of the Exchequer, Gordon Brown.

The bank is facing the same dilemma as the ECB and to a certain extent the FOMC.

While raising rates will quell demand, which is the traditional manner in which Inflation is tackled, it is only in the supply side of the economy that headline inflation is being mostly seen.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Michael Saunders' parting shot as he leaves his position on the Monetary Policy Committee has been to call for interest rates to be hikes to reach 2% within a year.

Saunders was calling for interest rates to rise long before his colleagues agreed with him and he has constantly voted for the size of hikes to be increased.

Saunders believes that rates still have some way to go to reach the neutral point where they are neither stimulating or restricting the economy.

The current wave of inflation which has become a global phenomenon over the course of 2022 is based upon demand for energy as the Chinese machine returns to full output and the war in Ukraine that has had a significant effect on the price of several foodstuffs.

With the oil price beginning to show signs of levelling off, there is a chance that inflation itself will also begin to level off, although it is probably too soon for tomorrow's release of data to do anything but show a further increase in the headline.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Surging inflation and rising interest rates didn’t manage to completely douse economic growth as the economy grew by 0.5% in May, compared to a 0.3% contraction a month earlier.

This unexpected improvement may be explained as an anomaly, but the reason for it has so far not been explained.

With the Government closing, for all intents and purposes, a month early to allow the race for the Leadership of the Conservative Party to take place, Westminster is doing nothing than cheering on its Candidate on one side or promising that no matter who is elected, they will be slaughtered at the next General Election by the Labour Party.

Several candidates have been pressured over how they intend to fund the rather extravagant tax cuts they are proposing. The only one without that pressure is current favourite, Rishi Sunak.

The former chancellor has no need to fund proposed tax cuts as he is not promising any…. yet.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

It now seems likely that the prediction of Rishi Sunak plus one other contesting the final ballot to be Conservative Party Leader will come to fruition next week.

A third ballot will take place on Monday and it is probable that the second candidate will be between Foreign Secretary Liz Truss and the Minister of Trade, Penny Morduant.

The level of backbiting and innuendo between candidates has, so far, been fairly low, but as the prize comes closer, so the fierceness of the competition will rise.

Truss spoke yesterday of her determination to ensure that the economy is back on track, by the time of the next election.

She injected a degree of realism by accepting that things will get worse before they get better with this winter expected to be especially tough as the cap on fuel prices will be adjusted upwards again in the Autumn, bringing the average family’s energy bill close to £3,500 per annum.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The first vote in the process to elect a new leader of the Conservative took place yesterday, and it meant the end of the road for the campaigns of current Chancellor of the Exchequer, Nadhim Zahawi, and the runner to Boris Johnson in 2019, Jeremy Hunt.

Hunt immediately backed yesterday’s winner Rishi Sunak while Zahawi said he wanted his supporters to make up their own minds.

Sunak polled the most votes, 88. He was followed by the three female candidates, with Penny Morduant second.

Sunak’s support within the Parliamentary Party looks to be sufficiently solid, for him to be one of the two candidates who will proceed to the vote by Party members.

The other spot in the national vote looks to w be a straight fight between Morduant and Foreign Secretary Liz Truss.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The race to be Conservative Party Leader has got under way in earnest, with eight candidates passing the first test of gaining the support of at least twenty Members of Parliament.

The two most significant fallers at the first hurdle were Transport Secretary Grant Schapps and one of the two Cabinet Ministers who are seen as the instigators of Boris Johnson’s position becoming untenable, Sajid Javid.

The leaders in the race are former Chancellor, Rishi Sunak, and current Foreign Secretary Liz Truss. Schapps and current Deputy Prime Minister Dominic Raab have declared their support for Sunak while Leader of the House, Jacob Rees-Mogg, favours Truss.

The first vote will take place at 1.30pm today, candidates required to receive a minimum of thirty votes to be able to remain in the race, although the one placed last will be dropped. A similar vote will take place tomorrow, with a third, if necessary, taking place on Monday.

The new Prime Minister will have a full slate of issues to deal with from day one when he or she takes over in September. Brexit and the Northern Ireland Protocol are still in need of clarity, while the cost-of-living crisis is unlikely to have abated, especially since the Chairman of Ofwat the electricity regulator spoke recently of the fact that the expected increase of £850 that was expected in the energy cap in the Autumn is likely to be nearer £1,200.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The UK will have a new Prime Minister on September 5th. The rules of the contest to be the leader of the Conservative Party were revealed last evening. There will be two votes this week and a third if needed will take place next Monday. The deadline for the Parliamentary Party to select the final two Candidates is July 21st which coincides with the Parliamentary Summer recess and a vote of the wider membership will then take place, with the winner announced on 5th September.

There are currently eleven candidates, with a twelfth, Home Secretary Priti Patel, having until later today to declare her candidacy.

The major focus of the early hustings has been taxation with several candidates having announced hope they will lower the tax burden on both businesses and individuals.

The exception to this is former Chancellor and current favourite to win the vote, Rishi Sunak. He has said that he is against an immediate tax cut until inflation is brought under control.

The Bank of England Governor has been critical of the promises being made by leadership candidates, believing that the independence of the Central Bank is threatened by announcing tax cuts at any time other than a formally discussed budget at which the Bank’s input is requested.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The race to succeed Boris Johnson as Leader of the Conservative Party and Prime Minister will begin in earnest this week as the rules of the contest are set out by the backbench 1922 committee.

At the last count, eleven MPs had thrown their hats in the ring. Former Chancellor of the Exchequer Rishi Sunak is the clear favourite to win the race, with today’s newspapers proclaiming that the poll of the last two standing will consist of Sunak and one of the other ten.

One of the most significant debates is over taxation, with Sunak implying that those candidates promising tax are simply playing to the crowd, since the funding for such a policy will need to be found from somewhere.

The opposition parties continue to criticize Boris Johnson for clinging to power by insisting that he remain in office until his replacement is elected. There have even been suggestions that a number of the replacements announced by Johnson, in the wake of last week’s mutiny, have been selected to make the new leader’s job more difficult.

The economy continues to falter as inflation shows little sign of abating. Price rises, particularly in foodstuffs, have become so stark that shoppers notice many items increasing in price week by week.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Prime Minister Boris Johnson finally bowed to the wishes of many of his colleagues in Westminster and announced his resignation from the post.

He said that he intends to stay on until a successor is confirmed, which could take until the Autumn.

This decision has received further criticism from both sides of the House of Commons, with Opposition Leader Sir Keir Starmer threatening to call a vote of no confidence to ensure that Johnson leaves immediately.

In the end, Johnson was forced to admit that his position had become untenable, something that had become obvious to his Cabinet colleagues days ago and was perfectly illustrated by sixty of them feeling obliged to resign their own positions.

Johnson swiftly reshuffled his Cabinet replacing those who have recently departed. Nominations for the role leader have already begun with candidates needing to have the support of eight MPs in order to stand."

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.