The pound starts the week on a sour note amid fresh political turmoil weighing on PM Theresa May, but GBP traders will vie with a busy week of economic data and speeches from the Bank of England this week. The pound was the top performing currency last week after European Union negotiator Barnier asserted the importance of speeding up Brexit negotiations.
Never-Ending Political Turmoil
The Sunday Times newspaper reported that 40 Members of Parliament agreed to sign a letter of no-confidence in Theresa May. If 8 more MPs join in, it would trigger a vote of no confidence, which would result into a leadership contest and further volatility in the British pound.
In addition, cabinet ministers Boris Johnson and Michael Gove sent the PM a letter that said they are profoundly worried that Brexit preparations aren’t proceeding with “sufficient energy”. Such inside party memorandums are not unusual, but for them to be leaked to the press is an explicit intent to destabilize Theresa May’s attempts to engineer a soft Brexit.
Removing Theresa May would be clearly negative for the pound for the simple reason that it would trigger fresh doubts on the current leadership but also because it would increase fears of a “hard Brexit” or a no-deal between the UK and EU.
Busy Week for Economic Data and the Central Bank
On the economic front, uncertainty with economic data remains high but several data points this week may provide more clarity. Tuesday’s release of the October inflation figures is expected to show a rise to 3.1% from 3.0%, further extending above the Bank of England’s 2.0% goal.
Wednesday’s report on UK jobs and wages will also be crucial, expected to show the unemployment rate to hold at 4.3%, employment to grow by 52,000 from 94,000 and wages growth to have edged up to 2.2% from 2.1%.
We also expect speeches from Cunliffe (Tuesday), Haldane (Wednesday), Broadbent (Thursday), Carney and Ramsden (Friday). Notably, Ramsden and Cunliffe are the only two Bank of England members who voted against this month’s decision to raise interest rates.
It is becoming harder to not notice the technical resilience of GBPUSD above the $1.3070 amid the surge in political uncertainty. As long as traders continue to price chances of an agreement over Brexit before year-end, there is no reason for a breakdown below $1.3000. With inflation not expected to fall towards the BoE’s 2.0% objective over the coming year, any resolution on the political front could be instrumental in triggering another typical whipsaw off the 100-day moving average towards $1.3330s.