Where to for GBP as UK Prime Minister faces vote of no confidence?

The positive momentum in sterling suggests that markets are not worried about the outcome of the vote of no confidence in Prime Minister, Boris Johnson, as the impact on the economic outlook is likely to be limited.

(Video Transcript)

GBP starts week higher despite political turmoil

Prime Minister Johnson is facing a vote of no confidence this afternoon from those within his party, as Graham Brady of the 1922 commission has confirmed.

GBP/USD

The pound is little move this morning. We have seen a little bit of a push to the upside. Let's bring up a chart now of the pound against the US dollar and we have seen, as you can see so far, some positive momentum here in the currency pair.

We have seen some weakness in the US dollar - that's probably one of the main reasons we have seen this slight move higher. But also the impact on the UK's economic trajectory is likely to be limited despite the outcome of this vote of no confidence this afternoon.

Economic sentiment

The move higher in the pound suggests that we've got broader issues that are in charge, especially this improvement in economic sentiment overall in the market. We've seen global stock markets pushing higher. This is obviously pushing that risk-on sentiment in the pound performing a little better here against the US dollar that I was mentioning just a second ago, little bit of a weakness there in the US currency, but also we're looking at the situation around this vote of no confidence. It differs from the ones we've seen in the past, most notably that of Theresa May's in the midst of the Brexit referendum.

Now, the impact on the economic outlook back then was much greater. The route that was going to be taken in the Brexit negotiations was really going to determine the movement in the pound, not so much this time around, as I said, the trajectory of the economic outlook isn't going to change much regardless of what we see.

And all in all, markets are expecting Boris Johnson to survive this vote and to see further on in the next few months what's going to happen with him.

But all in all, some stableness here in the pound, a little bit of a push to the upside with that improvement in overall market sentiment helping the British currency.