Pound’s Joyride on Political Noise Nearing End as BoE, Recession Fears to Return By

© Reuters.

By Yasin Ebrahim

-- The pound jumped Tuesday after overcoming early-day blues but political noise that has dominated direction in currency is overdone. As focus returns to the economy and the Bank of England, the risks to the pound remain to the downside.

GBP/USD rose to $1.259, after falling to a session low of $1.243.

Johnson on Monday survived a vote of confidence in his leadership of the Conservative Party by 211 to 148.

While the dark clouds of uncertainty hanging over Johnson’s future as prime minister are "unlikely to fade…markets are overpricing the impact of recent political noise on the UK economy,” ING said in a note.

Johnson’s narrow victory doesn’t provide “any clear implication for economic policy and – by extension – for the pound’s fundamentals,” ING added.

As the noise from Westminster takes a backseat, the pound will return to its prior diet, which included a heavy helping of Bank of England policy expectations and the U.K.’s economic outlook.

Neither of these factors, however, have proved particularly easy for the pound to stomach as the currency has ceded about 11% against the dollar after an expected decline in the economy last month fueled recession fears.

The focus will potentially shift “back to other drivers such as the Bank of England's policy or a slowing economic outlook,” ING added. “In our view, downside risks to the pound persist, but they are not strictly linked to the recent political developments.”

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