Sterling Steeply Lower After London Mayor Backs Britain Exit From EU

Sterling Steeply Lower After London Mayor Backs Britain Exit From EU

The Sterling is among the biggest losers during today’s session as it fell as much as 1.53% against the greenback to 1.4184. The plight of the currency was similar against the euro as GBP/EUR dipped 1.13% to 1.2795 during the later Asian hours.

Mayor’s decision unexpected

The cause of sudden shock to the currency is London Mayor, Boris Johnson’s decision to support exit of Britain from the European Union. The decision was least expected by the market, and resultantly it pushed the currency to three-week lows.

It is to be noted that the British Prime Minister, David Cameron, had struck a deal with the EU leaders last Friday, which gave Britain special status. Also, the deal allowed Cameron to call a referendum on Britain’s EU membership, which is scheduled to take place on June 23. However, London’s Mayor Johnson voiced his opposition yesterday and showed his inclination to support Britain’s exit from EU, stating that it is time to move on to real change. Johnson’s call is seen as a major setback to Cameron efforts to stay with EU.

Now the market will closely follow Cameron’s statement in favor of staying with the EU later today as he will present his argument before MPs.

Euro weakens

At the same time, the euro remained weak against the greenback after data showed that France’s private sector activity contracted last month. On the other hand, the business activity dropped to seven-month lows in Germany. The two sets of data have further fuelled expectations or rather pressure on the European Central Bank to launch more monetary easing measures.

On the other hand, the demand for the U.S. dollar remained buoyant as the data released on Friday confirmed that the U.S. is on the growth track. The core inflation in the region jumped at the fastest pace in four years, which has rekindled expectations that the Federal Reserve has room to hike rates this year. Such beliefs have stemmed a rally in the greenback, which was seen trading 0.40% up at 1.1086 against the euro. USD/JPY too was 0.16% up at 112.83.