The GBPUSD is trading lower at the start of today’s London session after Boris Johnson won last night’s confidence vote by a margin of 63 votes (211 in favour and 148 against). After the last weeks’ worth of consolidation and the break lower out of a rising channel, I am expecting to see the pound come lower.
Following his victory, Johnson is planning to reconvene his cabinet this morning to lay out plans for an announcement in the coming weeks on a new set of commitments to the country. It will take a lot of hard work to get the UK back on track and for this legacy to be remembered beyond the fines and “Party Gate” if the Conservatives are to win the next election. The task becomes more difficult when 41% of your own MPs are unhappy.
The final service sector PMI report for May is likely to confirm that activity in the sector slowed markedly last month. China’s lockdowns and the war in Ukraine, as well as the rising cost of living, contributed to the slowdown in the pace of growth. Sunak responded by announcing a £15bn package of additional measures aimed at supporting mainly low-income households, pensioners, and the disabled. There was also universal support for all households; the energy rebate was doubled to £400, which is being provided as a grant instead of a loan. As Mr. Sunak told the Treasury Select Committee yesterday, it was impossible to completely insulate people from the rise in the cost of living, but he also wouldn’t rule out further support if energy prices rose by even more than expected in autumn.
The FTSE had sold off from yesterday’s high in anticipation of uncertainty arising from the No Confidence vote. Today the price action is contained within yesterday’s price range but from a higher time frame perspective, the index is holding up very well. The rest of the global indices are mostly trading lower this morning during the Asia-Pacific session and into the start of the London session, driven in part by the higher-than-expected interest rate hike by the Australian central bank.
Against market expectations, the Reserve Bank of Australia (RBA) lifted policy rates by 0.5%, taking the cash rate target to 0.85%. Analysts watching the interest rate markets, now expect further aggressive tightening in the coming year to raise the cash rate above 3.5%.
The AUDUSD, with both components relative strong this morning, is trading at its open currently, having found resistance from the daily 200-period EMA. The RSI is signalling that momentum over the last 14 days is diminishing, so if we get an uptick in the strength of the US dollar index, I am expecting the 0.7250 to act as significant resistance and for the markets to come lower looking for more buyers.