Quick to Retreat
A receding US Dollar once again yesterday was able to lift the outlook for FX. One significant outlier to that remained the Pound Sterling which, whilst still able to outperform an ailing Dollar, itself sunk lower. The main cause cited behind the underwhelming performance of GBP has been rising political risk.
This political risk is being derived from the increasingly untenable position of UK Prime Minister Sir Kier Starmer. What likely got Sterling markets riled yesterday was the weekend resignation of close aide to no. 10, Morgan McSweeney. The Labour party and markets alike didn’t know what to make of this resignation: on the one hand, it shows at least someone in the party taking accountability for the blunder of appointing Lord Peter Mandelson as ambassador to Washington. On the other, it opens up a path for others including the PM to step aside and may even ultimately frustrate Labour party members about just how quickly a key aide to the PM can be let loose.
The eschewing of GBP as a result of political risk was reflected in UK Gilts. Yields on a 10-year gilt rose towards 4.5%, up several basis points. This is a reflection of political risk and also a partial bracing of the fiscal intentions of those that could well replace Starmer should his days indeed be limited. Sentiment has continued to follow the support amongst MPs for the incumbent government and Starmer’s address to the party last night will prove pivotal to establishing whether this is the end of the latest unfortunate chapter of Starmer’s time in number 10, or whether, actually, this is the end of a book that has made for relatively difficult reading.
Discussion and Analysis by Charles Porter
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