(XTB Analysis Team – XTB Poland)
The resignation of Boris Johnson as UK PM will bring some relief to UK investors as it curtails the uncertainty of a government in name only.
The news sparked some instant buying in the GBP which gained against the Euro as investors reacted to the news of his impending resignation. Make no mistake however, the GBP remains severely weak due to the dire state of the UK economy which is underperforming its peers, likely to enter into a recession while the Bank of England refuses to hike interest rates aggressively to deal with the escalating inflation.
The UK index is attempting to find a clear direction as investors impatiently await further developments after the news of a massive exodus of ministers from his cabinet. One thing is for certain though, the new Prime Minister – whoever that is – has a massive job on their hands.
Eyes on ECB minutes after EUR/USD approaches parity
While news surrounding the Boris Johnson and UK parliament situation is going to be in focus, minutes from the latest meeting of the European Central Bank’s Governing Council are the highlight in today’s economic calendar (12:30 pm BST).
FOMC minutes released yesterday turned out to be a rather hawkish one with the US central bank signaling that it will not hesitate to tighten policy at an even faster rate if the situation requires it, an issue that was in doubt given how negatively markets and risk assets have reacted so far.
While such a strong hawkish message is not expected from the European Central Bank, the document may provide some crucial insight after the ECB announced at the latest meeting that rate hikes are coming but it is still uncertain how long the cycle will go and how high rates will increase.
While clear answers to these questions are unlikely to be found in ECB minutes, some guidance may be provided which may also help stabilize the situation after we saw EURUSD drop to the lowest level in 20 years and reach a low of around 1.016 yesterday. Dollar weakness can also be seen today despite yesterday’s FOMC statement and we can notice a reaction across asset classes with commodities and stocks starting the day higher.
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