British pound slips on political uncertainty

on Nov 8, 2017
Updated: Oct 11, 2019

The British pound slipped against the US dollar Wednesday, reversing much of the overnight gains made amid dollar weakness. The weaker tone came as UK Prime Minister Theresa May’s leading cabinet could lose yet another member.

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The British pound was at $1.3104 shortly after midday, losing close to three-quarters of a cent during morning trading.

The latest Bank of England (BOE) agent’s summary has also added some caution to the currency investment backdrop.

Political problems

UK PM May’s tenure to-date hasn’t been easy. And now she’s potentially facing her second cabinet member crisis over the course of just seven days.

Following the resignation of defence secretary Sir Michael Fallon for inappropriate behaviour, May’s International Development Secretary, Priti Patel has been ordered back from Africa.

Patel has reportedly attended a number of unscheduled and unauthorised meetings with Israeli officials, in recent months. Patel was reprimanded in Downing Street Monday, following news she had attended meetings with foreign Government officials, without following the required protocol.

However, had Patel simply informed the foreign office of her meeting plans, its possible this wouldn’t be the scandal it has become.

Political problems and uncertain Governments work to unnerve currency investors, as it can undermine a country’s political and economic stability.

If a country isn’t stable and strong, it’s currency isn’t considered as safe a bet as other currencies where the economic and political backdrop is more reliable.

Uncertain business backdrop adds pressure

While the UK’s political situation continues to worsen for UK PM May, other developments added to the downward pressure on the British pound Wednesday. The BOE’s latest agents’ summary report, was one such item.

While little change was reported from the previous summary – immediate investment growth plans remained modest and the recruitment market was a little tighter – some businesses did suggest plans to reduce investment over a two-year horizon.

“Investment growth was expected to be somewhat weaker over the following two years,” the BOE report stated.

“Economic uncertainty was the biggest drag on investment plans. Expectations about future trading arrangements and other factors related to the United Kingdom’s decision to leave the European Union, such as concerns around the future availability of overseas labour, were also reported to be restraining investment,” the BOE report read.


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