Sterling Exposed as Theresa May Fights for No. 10 – 6th October 2017

Sterling Exposed as Theresa May Fights for No. 10 – 6th October 2017

The ongoing political tension that has been circling the Conservative Party since its disastrous election campaign in June boiled over yesterday as Grant Shapps, the former Tory Party Chairman, said he now has thirty colleagues backing a move to oust Theresa May as leader. PM May has been under relentless pressure during her 15- month tenure as Prime Minister as she has been unable to rally Ministers around her during our handling of Brexit so far with some believing her to be weak and unwilling to fight for a Brexit which supports British businesses dealing with Europe.

The impact on Sterling has been clear as it has fallen to a month low against the US Dollar at 1.3070 and a 3- week low against the Euro at 1.1170.

It is not just the political scene affecting Sterling, but also suspicions that the BoE will not raise interest rates at the next meeting of the MPC. Mark Carney, the Bank of England Governor has been making efforts at “talking up” the pound using phrases about rates being raised “in the coming months”. Traders have so far taken the bait and last week futures data showed net long positions for the first time since 2015.

Data this week has been mildly Sterling positive with both manufacturing and services PMI both remaining in the “expansion zone”. The big test in two weeks time when employment and inflation data for September will be released. The last Quarterly Inflation Report from the Bank of England predicted inflation would peak at 3% this month. Should it reach that level a month early, the gap between pay and prices will surely have risen close to 1% as the market awaits the effect of the partial removal of the public sector pay cap on wages.