According to media reports, Theresa May has been instructed to provide a roadmap for her departure by this afternoon. Having acknowledged UK participation in European elections in two weeks’ time and given the apparent failure of cross-party talks, opposition to the Prime Minister’s tenure is growing. A disorderly resignation from Mrs May would risk a breakup of the presiding parliamentary majority, kick-starting the process toward a general election. The ensuing political risk could destabilise the Pound.
The Greenback has come under pressure over the escalation of tariff rhetoric between the US and China. The fall in the DXY Dollar Index has shifted to other safe-haven currencies like the Japanese Yen and Swiss Franc. The timing of President Trump’s gambit, to force Chinese ascension to US terms, should not be ignored. Any backtracking by the Americans might result in a US Dollar relief rally before the end of the week.
The Pound sold off against the US Dollar by almost a cent during yesterday’s session amid mounting political risk. Overnight data showing improving consumer sentiment has done little to provide fresh support for Sterling.
The Euro is trading broadly sideways against the US Dollar, although the release of the European Central Bank’s (ECB) meeting minutes later today could provide some fresh direction. Clarity over where the bank intends to take monetary policy next will indicate whether an economic recovery for the Eurozone is materialising.
The Pound pushed out to five-week highs against the Euro ahead of the weekend break but has been giving back these gains in recent days. Mounting political risk in the UK is taking a toll, and the ECB’s monetary policy meeting minutes stand to provide further direction for the cross in the short-term.