A one horse race for PM

12 July, 2016

Simon Eastman

The pound started off the weeks trade on the back foot again as we saw rates slide further into the doldrums and fresh lows against the US dollar.

With no UK data to try and help bolster the ailing pound, following the detrimental comments from the Bank of England last week, the markets continued to sell off sterling ahead of the Bank of England meeting this coming Thursday. The only data was some low key EU production stats alongside a Euro Group meeting which of course, we no longer have any part to play in.

So come lunchtime and we started to hear on the news wires rumours surrounding the Tory leadership race. After a barrage of abuse from party members and beyond over the weekend, towards Andrea Leadsom, following her comments that she’d make a better leader as she was a mother, she spent the day apologising for those comments. Seemingly with a lack of real support inside the Conservative party, she made the decision the country would be better off with a new leader sooner rather than later and as such decided to step down and back Theresa May for PM.

The stocks and currency markets took this news well and the pound rallied cent against the euro, a cent and a half against the US dollar and over 2 cents against the Aussie dollar. This was helped in the afternoons trade when David Cameron came out to address news agencies stating that Theresa May would be in Number 10 by Wednesday evening.

Markets were positive as some political surety at last and potential for the UK to now move forward with the Brexit plans voted for by the majority of the voters 2 weeks ago. But buyers beware as the rally may be short lived. We still have a campaign running to hold the government to account that they can’t just go ahead with invoking Article 50 unless its voted for by an act of parliament. This is a campaign headed up by Mischon de Reya law firm but backed by thousands of lawyers and will be hard to not take seriously. Theresa May, although a Remain campaigner said “Brexit means Brexit” but will she be able to deliver this or will the uncertainty drag on further despite having a new PM in place – of course, only time will tell.

Today, apart from the political issues, we have some key ecostats to contend with including German inflation and the UK inflation report hearing at 10am followed by the Bank of England’s quarterly bulletin at midday, which is likely to be a fairly torrid affair with an outline of expected growth and general economic activity for the UK going forward. The US data releases are pretty low key although a couple of Fed member speeches come after lunch.

For anyone with a transfer coming up, make sure to keep in touch with the CI team for all the updates and friendly guidance over the day.