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Brexit and Politics Are Back to Haunt the British Pound Again

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British pound affected by politics

The British pound (FXB) appreciated by 0.88% against the US dollar (UUP) for the week ending November 10. The pound (GBB) closed for the week at 1.3, recouping some losses after the Bank of England erased any rate hike hopes. Another round of unsuccessful Brexit negotiations added to the British pound’s worries, as no positive developments emerged from the talks. The key factor that could impact the British pound would be news that British Prime Minister Theresa May could face opposition from her own party members, which could lead to political instability in the days ahead.

British equity markets (BWX) remained under pressure and the FTSE 100 Index (EWU) posted a close of 7,432, down by 1.7% for the week ending November 10.

Speculators turned bullish on British pound

As per the latest Commitment of Traders report released on November 13 by the Chicago Futures Trading Commission (or CFTC), speculators have moved back into net bearish positions on the British pound. The total outstanding net positions were 9,198 short contracts as compared to 1,245 long contracts in the week before. There could be further additions to the short contracts as the political uncertainty rises in the UK.

Week ahead for the British pound

The key driver for the British pound this week will be politics. Though 40 members of Theresa May’s own conservative party have signed a letter of no confidence, they would need eight more members of parliament to initiate a change of leadership. Investors could turn nervous if the political turmoil escalates, as May’s exit could alter Brexit expectations.

Economic data due to be reported this week include inflation and retail sales data for October. Economic data is likely to take a back seat this week, and the British pound is likely to remain under pressure amid political uncertainty.

In the next part of this series, we’ll look at why the Japanese yen appreciated against the US dollar last week.

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