Pound Weakens as U.K. Government Risks Losing Another Minister

Updated on
  • Sterling declines against all of its Group-of-10 peers
  • Wednesday’s weakness may persist until greater clarity: Nomura

Why a U.K. Election Could Be Good for the Pound

The pound fell for the second day against the dollar as U.K. Prime Minister Theresa May looked set to lose a second member of her cabinet within a week.

Sterling dropped against all of its Group-of-10 peers as newspapers reported that May was preparing to fire International Development Secretary Priti Patel, who held several unauthorized meetings with Israeli officials while on holiday. The prime minister already lost one top minister this week when Defence Secretary Michael Fallon quit in a sexual harassment scandal, adding to the government’s troubles as it struggles to make a breakthrough in Brexit talks.

“In terms of the pound, it’s hard to trade in the short term based on the politics given the various directions these scenarios can go,” said Jordan Rochester, a currency strategist at Nomura International Plc. The weakness seen on Wednesday will likely persist until there is greater clarity, and “a lot will rest on any signs of progress on Friday in the Brexit talks and how the political scandal will go before a significant rally can get underway,” he said.

The prime minister is vulnerable to further calls for her to step down, after a disastrous party conference speech last month saw up to 30 lawmakers reportedly sign a motion for her resignation. While the reaction in the markets is still relatively muted compared with early October, pound weakness will likely build if Tory rebels rise against May in the next few days, according to Rabobank’s head of currency strategy Jane Foley.

The pound fell 0.5 percent to $1.3095 as of 3:02 p.m. in London, extending losses on Tuesday which followed disappointing retail-sales data. Sterling weakened 0.6 percent to 88.57 pence per euro. The yield on U.K. 10-year government bonds declined 3 basis points to 1.20 percent.

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