10/11/2017 - Political Scandal Weighs on Pound

GBP

 

Sterling fell for a third consecutive day on Thursday as growing political turbulence surrounding Prime Minister Theresa May’s government sapped institutional investors’ demand for British assets.

A string of scandals leading to two resignations from the cabinet in the space of just one week has raised doubts over the Conservative government’s ability to secure a strong deal in negotiations over Britain leaving the European Union, which restarted in Brussels on Thursday.

Investors in sterling assets have also been hit by widening bond yield differentials in recent days. The gap between short-dated U.S. and British government yields has widened to a near five-month high of 119 basis points. However, despite the rising political turmoil, markets are not yet pricing in a potential change in government.

USD

The dollar slipped to its lowest against the yen this month on Thursday, and remained weak against most major currencies, ahead of the expected release of a tax-cut bill by Senate Republicans.The Senate tax-cut bill differs from one in the House of Representatives and could complicate a Republican tax overhaul push, increasing scepticism on Wall Street about the effort.

Any potential delay in the implementation of tax cuts, or the possibility of proposed reforms being watered down, would tend to work against the dollar, analysts said. The dollar index was largely changed after data showed the number of Americans filing for unemployment benefits rose more than expected last week to 239k against a previous of 229k.

Key Announcements

09.30 – GBP – Manufacturing Production MoM; Forecast at 0.3% against a previous of 0.4%