Markets Price in A BoJo Win
The week started on weak footing today with no key releases on the economic calendar. Geopolitical headlines amid renewed UK-Iran tensions have, however, managed to increase capital inflows, mainly noticed in crude oil.
The rest of the markets remain somewhat muted except for the British pound.
Sterling is taking a good beating as markets seem to be pricing in a BoJo win on July 22nd. Borris is pro-Brexit before the October deadline.
UK Tanker Seizure Approach Could Destabilise Diplomacy
Last Friday, Iran seized a British tanker in the Strait of Hormuz in a response to Britain’s original impounding.
The tit-for-tat move follows a round of recent scuffles not only with the UK but also with the US, adding to concerns that a diplomatic resolution is at risk. UK officials claim their seizure two weeks ago was legal, whereas Iran’s Revolutionary Guard is “totally and utterly unacceptable”.
In light of continuous reciprocal actions, Europe is struggling to contain tensions. And this has been the case since US President Trump reimposed sanctions on Iran. Now, with Britain entering the game under the US’ commands and a suspected breach of EU sanctions destabilizing the path for compliance, a single miscalculated step could lead to war.
UK-Iran Relations Under Threat
The UK is facing the difficult task of handling further conflicts while a new PM is being elected at home. With Borris Johnson likely to be the next prime minister, diplomatic initiatives could be jeopardized as Johnson is keen to strengthen his ties with the US.
Although Germany and France called for the immediate release of the British ship, they acknowledge that the main goal is to resolve the tanker issue with the aim of resetting the relations between all affected countries.
GBP/CAD Down Most
Oil remains supported by potential export disruptions, but it is GBP/CAD that suffered most of the losses on Monday. The pair has weakened from an open of 1.6334 to a daily low of 1.6256 and is currently taking a breather near 1.6275.
With the leadership contest approaching, prices could head lower towards the 1.6178 support to form a double bottom. That scenario would weigh on prices and could end up on a fresh breakout. In the case of prices bouncing off at the said level, prices could recover all the way up to 1.6383.