Start to the Week

Discussion and Analysis by Charles Porter:

The Pound Sterling dominates the story in foreign exchange markets following the weekend. The potential to induce vote of no confidence in May’s leadership was claimed to be in excess of 80%, with 40, out of a necessary 48, MPs said to have signed their name in support of a vote. Following the news, published in the Sunday Times, the Pound Sterling trades approximately 1% weaker than Friday’s market close. Moreover, following an apparently stagnant 6th round of Brexit negotiations last week, the Pound faces pressure. Elsewhere, entering into a data-heavy week, major currencies are relatively unmoved.

Sterling Briefing: No Confidence

As the confidence of Conservative party members in their party leader and Prime Minister, Theresa May, falls, so too does investors’ confidence in the Pound Sterling. The Pound has opened weaker by around 1% against the US Dollar and, moderated by a mildly weaker Euro, by approximately 0.6% against the single currency.

The potential for a vote of no confidence and change of leadership was published in yesterday’s Sunday Times. Whilst the extent of the challenge remains obscure, and the complexion of rebelling MPs remains unclear, the threat does follow a tumultuous time within the UK cabinet, and stumbling Brexit negotiations. After the Pound and the Prime Minister received a boost from the European reaction to the Florence speech, any further political risk within the United Kingdom will be severely negative for the Pound. Hard economic data, including the rate of inflation and unemployment statistics, are due to be published this week. However, these could prove to have a weaker effect upon the value of Sterling than domestic politics this week.

The weakness of the Pound this morning, shown against the Euro and Dollar below, reflects the pricing-in of instability within the UK polity.

Euro Briefing: The Battle Continues

The most notable recent event that has determined the value of the Euro caused a shock devaluation on the 26^th October. The devaluation of the single currency was caused by a ’dovish’ tapering of Eurozone quantitative easing, sending the Euro down by more than 1.5%.

Following the monetary policy decision that sent the Euro into new ground, it has been battling with the US Dollar to correct back to pre-decision levels. Whilst the Pound Sterling has been embroiled with Brexit negotiations and the UK’s domestic politics, the Euro-Dollar currency cross proves interesting. Any consolidation within the Euro following the devaluation has been weak, with the Euro presently trading just shy of 1.5% weaker against its pre-decision value. Following the weekend, the Euro has opened weaker as we wait to see whether the Euro’s fight-back has run out of steam.

Dollar Briefing: Trump’s Tour Concludes

Currency markets have come to understand and expect the volatility of a Trump presidency. Therefore, following a potential increase in global political risk whilst the leaders of the United States and North Korea exchanged insults over Twitter, the Dollar remained relatively stable.

As Trump’s tour draws to a close, any news of positive and above-expectation trade deals will be positive for associated equities and the US Dollar. Should political relationships have been fostered that might facilitate a peaceful resolution to the threats centered around the Korean Peninsula, the Dollar would also receive a boost.

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