Sterling Plunges, Hard Brexit Looms as Boris Poised to Win

GBP

The British pound weakened against other major currencies as investors feared that Boris Johnson could trigger a "No-deal Brexit." The conservative party will announce today the results of the leadership contest, where Boris is widely expected to replace Theresa May. A no-deal Brexit is the worst scenario and will have a severe impact on the British economy, which could push the Bank of England for aggressive stimulus. Yesterday, the Foreign Office Minister Alan Duncan resigned, while Chancellor Philip Hammond is also expected to submit his resignation. The GBPUSD tumbled to a low of $1.2435, and the GBPJPY dipped to 134.40.

USD

The dollar index, which measures the greenback against a basket of major currencies extended gains rising to a two-week high of 97.51 supported by the dropping European currencies. The Euro and Sterling account for almost 70% of the dollar index basket, and since both currencies are tumbling for different reasons, it is happening in favor of the dollar. The rising chances of further monetary policy easing by the ECB continued to weigh on the single currency, and the prospects of a hard Brexit drove the pound lower. The above facts supported the dollar in its race higher despite the expectations of an interest rate cut by the Federal Reserve next week. The probability of a 25 basis-point rate cut sits at 80.6% as per the CME Fed Watch tool, while a 50 basis point rate cut dropped to 19.4% after reaching a high of 52% last week. The USDJPY rose to 108.20, and the EURUSD declined to a five-week low of $1.1185.

Metals

Precious metals price inched lower as the dollar strengthened. The price of a gold ounce dropped to a low of $1414, the price of a silver ounce tested a low of $16.16, while palladium recovered slightly to $1524.

Oil

Oil prices continued to trade near the upper side of the consolidation zone supported by the escalating geopolitical tensions in the Gulf. Investors are worried about the safety of oil supplies following the incidents of the oil tankers in the Strait of Hormuz. The West Texas Intermediate crude futures rose to $56.98, and Brent futures edged higher to $64.04. The American Petroleum Institute will report the weekly crude oil stock which could have an impact on investors' appetite ahead of tomorrow's official numbers.

Major Economic Events

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