Positive Sterling Boost Last Week

Last week was a very surprising one on the currency markets, with the main event turning out to be the UK cabinet reshuffle conducted by Boris Johnson and Dominic Cummings at the start of the week. Normally an event like this would barely trouble the currency markets, but the radical nature of the reshuffle caused such an uproar that the impact on the Pound was significant.

Numerous high profile government ministers lost their jobs and were replaced by new ministers who were all very much from the Johnson/Cummings song sheet, with the biggest scalp being Sajid Javid, who was forced to resign having been given the completely unsatisfactory alternative of firing his entire staff, and having them replaced instead. This is the first time a chancellor has been done away with since the Thatcher years, and with the Chancellor typically the de facto second in command, this was a major step. Rishi Sunak, a 39 year old hedge fund manager, and only recent MP, was given the keys to number 11 Downing Street, in another example of one of Boris’ (rather Dominic’s) favourites being put in place.

The reason that this major reshuffle had such an impact on the currency markets, is simple – Boris now has no challengers to any of his plans or strategies, and he will be able to enact whatever schemes he desires, knowing that his cabinet all owe him for their elevation and his majority rules parliament. As such the horrible “uncertainty” word is massively reduced. It might not be to everyone’s taste what the Johnson/Cummings axis will come up with, but at least we know which route it will likely be and that once decided it will stick.

As such the Pound strengthened to the highest level we have seen since the 2016 referendum, only seen briefly in December in the immediate aftermath of the election result. As happened then, the rates have started to slip away already, with a major resistance point tested and failed.

The week ahead is a very busy one with multiple economic data releases due out. Critically it is “inflation week”, which will provide a further clue as to the Bank of England’s plans for interest rates – remember recent indications of a potential cut, could well be helped by the UK’s result. With lowering interest rates meaning lowering Pound derived exchange rates.

Monday
UK House Price Index
ECB’s Lane speech

Tuesday
Reserve Bank of Australia Meeting Minutes
UK Unemployment Rate
UK Average Earnings
European Economic Sentiment Survey

Wednesday
UK CPI Inflation
UK RPI Inflation
UK PPI Inflation
US PPI Inflation
US FOMC Meeting Minutes
Canadian CPI Inflation

Thursday
European Council Meeting
Australian Unemployment Rate
German CPI Inflation
UK Retail Sales Figures
ECB’s De Guindos Speech
ECB Monetary Policy Accounts
US Jobless Claims

Friday
European Manufacturing and Services PMI
UK Manufacturing and Services PMI
European CPI Inflation
US Manufacturing and Services PMI