Sterling instability ahead of Conservative party leadership result.

The dollar made net gains amid a lack of confidence in other major currencies and expectations that the US yield advantage would be sustained.

The Swiss franc maintained a firm overall tone amid expectations of easing by major central banks and defensive demand.

Political concerns continued to erode Sterling support with the new Prime Minister seen as facing major difficulties.

Global equities secured net gains on hopes for ECB and Fed rate cuts. Precious metals failed to secure fresh gains and dipped lower on a firm US dollar tone. Crude held a firm tone with slight net gains as Middle East tensions provided support.

Political uncertainty continued to undermine Sterling on Monday ahead of Tuesday’s announcement on the Conservative Party leadership election and there were still extremely strong expectations that Johnson would be confirmed as the winner.

Following Chancellor Hammond’s announcement that he would resign if Johnson is elected, junior minister Duncan resigned. Markets remained concerned over the risks of government instability and a fresh push towards a ‘no-deal’ Brexit. Assuming Johnson does win, early rhetoric from UK and EU officials will be important for Sterling sentiment.

Bank of England Chief Economist Haldane stated that Brexit was undermining the UK industrial strategy. Although there was no commentary on monetary policy, underlying confidence in the economy remained weak.

Sterling overall lost traction with a GBP/USD retreat back below 1.2500 while GBP/EUR tested the 1.1150 resistance area before correcting to 1.1110. US gains dominated in early Europe on Tuesday with GBP/USD drifting towards 1.2450.

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