Gold Awaits As Boris Johnson And The Fed Take The Spotlight

Last week, Boris Johnson became the PM of the UK. The odds of hard Brexit increased, sending the pound lower. Now, markets await tomorrow's FOMC meeting. Gold closely monitors these events and thinks about which way to go next.

Boris the Brexiteer

Last week, Alexander Boris de Pfeffel Johnson - for the people of Great Britain known as Boris Johnson with a funny mop of blonde hair - became the next Prime Minister of the United Kingdom, after Theresa May resigned. And who knows - he might very well be the last prime minister of Great Britain, as the union comes under increasing internal pressure due to Nicola Sturgeon's push for a second referendum on Scottish independence. Remember, not all constituent parts of the United Kingdom voted for Brexit - the lion's share of that vote came from England.

Initially, the market's reaction was muted as Johnson's appointment as the PM was well telegraphed. But it seems that the market has just realized that the odds of a no-deal Brexit increased with Boris at the helm. Indeed, in his first speech as the prime minister, Johnson said that "We will come out on 31 October, no ifs and no buts. We will do a new deal and a better deal."

Yesterday, Johnson continued, insisting he will not hold Brexit talks with EU leaders unless the bloc lifts its refusal to reopen the existing divorce deal. He said: "what we want to do is to make it absolutely clear that the backstop is no good, it's dead, it's got to go. The Withdrawal Agreement is dead, it's got to go." True, he also added that "but there is scope to do a new deal," but the market focused on the first part.

It means that the UK moved closer to a no-deal exit from the EU. Amid Johnson's remarks, the pound sterling fell by more than 1 percent to €1.10 and $1.22, the lowest against the dollar for 28 months, as the chart below shows..

Chart 1: GBP/USD exchange rate over the last three years.

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