This week so far for Sterling has been politically focussed with two cabinet ministers (David Davis and Boris Johnson) both resigning within 24 hours of each other over the Brexit proposal put forward by Theresa May at Chequers on Friday. The below Sterling report goes into further detail about the impact of recent Brexit related uncertainty on the Pound. The table below displays the change in the exchange rate for a number of currencies throughout the past week, showing the difference in Sterling you could have achieved when selling £200,000.00 during that time.
|Currency Pair||% Change||Difference on £200,000|
This is big news and Sterling did initially drop off on Monday but recovered slightly yesterday. GBP appears to be able to take the strain of the resignations at present, however one thing to note is that the last time that two ministers resigned within a 24-hour period was before England were last playing in a football world cup semi-final, so this is not the sort of thing that happens regularly!
The uncertainty that this brings will no doubt cast a shadow over the Pound as we now wait to see if Boris Johnson and co have made this move with a different motive, should we see a leadership challenge come out of all this then Sterling could really suffer and drop off much more significantly. Yesterday we saw Tory vice chairs quitting over the Brexit plan and it has been rumoured that we may even see resignations at the rate of 1 per day unless May makes a move to back track.
There are two main reasons why Sterling would suffer from a leadership challenge, first and foremost is the fact that this would bring about further political instability. If an area is politically unstable then you can find that the currency for that area can weaken as investors tend to steer clear of it to wait until the dust settles. Further twists and turns in this story may even ultimately lead to another general election, when in the middle of negotiating Brexit this realistically would not be viewed as good news for the U.K or indeed the Pound. Indeed yesterday afternoon the bookies favourite to be the next Prime Minister was Jeremy Corbyn which would mean wholesale changes and a real riddle to resolve.
The second issue it brings is should Boris be successful in a leadership challenge then it is more likely that a hard Brexit will be the route that we go down. So far the markets have viewed a softer Brexit (the current approach) as better for Sterling and a harder Brexit as a little more negative for the economy.
Tomorrow will be key for Theresa May as we are due to see the release of the white papers regarding Brexit plans. Many had thought that these issues may have resulted her in delaying this release but it does appear this will go ahead as planned.
This may bring further issues for May if the papers do not go down well so tomorrow may be a key moment for how Sterling will perform over the course of the rest of the trading week.
Whilst there is all of this going on we must remember there is still economic data being released over the course of the week, and to be fair so far this month that has actually been rather good.
Yesterday we had the NIESR (National Institute of Economic and Social Research) Growth estimate, which is a prediction on how the U.K economy has performed throughout June. This release is usually taken fairly seriously by investors and can impact the value of the Pound as it is not usually too far away from the officially figures when they are released.
Good weather and a good world cup run by England appear to have given the economy a slight boost and the figure posted at a good solid 0.4%.
Should we manage to get over these political issues then the general outlook for Sterling is fairly positive, but unfortunately with the latest news this is one huge hurdle to overcome.
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