FX round-up: Pound little changed as traders mull 'no-deal' downside

Sterling was little changed at the start of the week, as Conservative party members began voting on 6 June to choose between Boris Johnson and Jeremy Hunt as their next leader.

With a YouGov poll in the Times showing that Johnson was best placed to win, with 74% of party members backing him, on Monday there was some 'market chatter' regarding the possibility that investors might be underestimating the chances of a no-deal Brexit, with the spread between three-month and six-month pound risk reversal options at its widest since 2016.

On a related note, according to consultancy Deloitte's second quarter survey of British chief financial officers, fully 83% believed the business environment was set to worsen because of the UK's decision to leave the European Union - the most since the referendum in 2016.

And while markets were only pricing-in about 14% odds of two or more cuts in Bank Rate for 2019, in case of a no-deal Brexit "the MPC will be bold because interest rate cuts have become less effective," said Samuel Tombs at Pantheon Macroeconomics.

Against that backdrop, as of 1659 BST, cable was drifting lower by 0.18% to 1.25031 while against the euro, sterling was off by just 0.05% to 1.1153.

In parallel, the US dollar spot index was adding 0.10% to 97.3860 and US dollar/yen was ahead by 0.22% at 108.7160, amid follow-through buying on the back of the prior Friday's better than expected reading on June US non-farm payrolls.

Euro/dollar meanwhile was a tad lower, slipping by 0.15% to 1.12088, despite news at the weekend that Greece's centre-right opposition party, New Democracy, had won the country's general elections and possibly also an absolute majority in the Parliament in Athens.

Further afield, the Greenback was on the back foot against Russia's rouble, retreating 0.48% to 63.5044, even after it was reported that consumer price gains in Russia slowed to a year-on-year rate of 4.7% in June, which was down from 5.1% for May (consensus: 4.8%).

Lower near-term risks for CPI strengthened the case for two 25 basis point cuts at the Central Bank of Russia's July and September policy meetings, said economists at ING.

Against the Turkish lira on the other hand, the US dollar was bounding higher, jumping by 1.79% to 5.7286 after Prime Minister Recep Tayyip Erdogan sacked the Governor of the country's central bank, Murat Cetinkaya, at the weekend.