Worst week in a year for sterling as spotlight falls on May’s position
THE pound has endured its worst week in a year as speculation swirled that Tory MPS were preparing to topple the Prime Minister, stoking fears on the markets of a fresh bout of political uncertainty.
Already wounded by weaker-thanexpected data from the construction and manufacturing sectors earlier in the week, sterling’s performance on foreign exchange markets went from bad to worse as the possibility of a coup d’état at Number 10 weighed heavily on the British currency.
Against the dollar, which has conversely enjoyed another strong week, sterling tumbled by 2.5pc to below $1.31 over just five days, while against a trade-weighted basket of the leading currencies it shed 2.1pc. A “perfect storm” has caused the bloodbath on currency markets this week with the pound “getting hit on all fronts”, said Viraj Patel, an ING foreign exchange strategist.
He added that sterling’s weakness this week against the euro, which itself has been “plagued by its own political risks with Catalonia”, demonstrates that the pound’s under-performance story has been the dominant force on the markets. Mr Patel said that the political infighting could knock sterling a further 1-2pc.
However, he said that gilt yields brushing aside the heightened uncertainty was a silver lining.
Although sterling briefly sank during Theresa May’s now infamous speech dogged by coughing fits, a prankster and collapsing stage scenery, a slight uptick in the services purchasing managers’ index, a closely watched survey regarded as a key sector health checker, mildly restored the market’s confidence in the UK economy to nudge the pound up on Wednesday.
That one positive session was, however, sandwiched by four days of sharp retreat.
Sterling briefly flirted with a rebound against the dollar yesterday as Mrs May insisted that her Cabinet was behind her but the rally was quickly extinguished by hurricane-battered US labour statistics beating expectations. Sterling pulled back a further 0.6pc.
While the Hurricane Irma-distorted figures showed that US payrolls declined for the first time in seven years, dropping by 33,000, traders focused on monthly wage growth picking up to 0.5pc to boost the dollar on foreign exchange markets.