British pound falls to three-week low on political uncertainty

British pound falls to three-week low on political uncertainty

Just one day after the 2017 Conservative Party conference, political uncertainty has risen on fears current Prime Minister Theresa May’s leadership could fall victim to Tory rebels. It appears that view is strong enough to push the British pound to its lowest level against the dollar in three weeks.

In Thursday morning trading, the sterling-US dollar pair moved below the key level of $1.322. The first time it’s done so since mid-September on hawkish Bank of England (BOE) comments.

Until this week, the British pound was doing pretty well. It was supported by a reasonable run of economic data and increasing signs that the BOE was set to hike rates as soon as the November meeting.

This week, however, the US dollar has been in ascendancy on President Trump’s tax reform plans and evidence of a strong economic recovery and future tax rate hikes form the Federal Reserve.

In the meantime, the UK PMI surveys proved disappointing overall. New car registration data was weak and the aftermath of the Conservative party conference is proving toxic for PM Theresa May. All of which is weighing heavily on the British pound.

However, despite those fears, UK foreign secretary Boris Johnson, failed to challenge May’s leadership in his Tory conference speech. But, other party rebels likely have their own plans.

Meanwhile, the British pound also lost ground against the euro Thursday, as May’s Brexit comments and plans continue to be met with a lukewarm reception.

UK industry chiefs said while the two-year change over plan might have been designed to instil confidence into businesses, it could actually have the opposite effect.

"We welcome further clarity from the Prime Minister on a proposed two-year implementation period and the assurance for EU citizens living in the UK,” said Chris Cummings, CEO of the Investment Association, according to a recent report in Investment Week.  

"UK and European investors now want further certainty during the forthcoming negotiations," he added.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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