The pound fell yesterday to at 1.244, hitting a two-year low against the dollar and at 1.1108 against the euro. The pound has fallen by -5.0%, or seven cents, against the dollar in the last two months. The reason for the fall of the pound is linked to two main factors: fears related to the performance of the real economy, with the United Kingdom likely to go into recession during the second quarter of the year and Brexit fears. On this second point, in particular, a negative belief seems to have formed among ForEx traders, called the “Boris Johnson effect” which hints investors to go short of sterling whenever the name of the leading candidate of the Conservative party in the premiership express himself on the UK exit from the block.
In particular, traders seem to be willing to punish the idea expressed several times by the former mayor of London, who wants to leave the European Union by 31 October, come what may. David Bloom, head of HSBC currency strategy, said yesterday that the Pound could lose another -15.0% in the event the United Kingdom really had to get out of the block, even falling below the 1.10 threshold against the dollar.
More worryingly, though, the rule of thumb that traders are using with Boris Johnson character, whose appearance sparks generalized short selling against the British currency. A sort of unwritten communication code thanks to which many speculative traders earn money in the very short term. More than paying attention to macroeconomic data, however important, traders would do better to draw their trading strategies according to the number of appearances and declarations made by the frontrunner of the Tories.