Uneventful Cabinet reshuffle boosts GBP - until Greening resigns

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The pound was able to end the day on largely strong form, benefiting from weak Eurozone data.

The pound begins the session on a weak footing this morning. GBP/EUR is flat at €1.1335, while GBP/USD has slipped -0.2% to US$1.3539. GBP/AUD has dipped into negative territory, falling to AU$1.7277, GBP/NZD has dropped -0.3% to NZ$1.8856, and GBP/CAD has weakened -0.2% to C$1.6822.

Read on to find out the latest political news that is likely to be the driving force behind any GBP exchange rate movements today…

What’s been happening?

The pound ended the day on strong form overall yesterday, even though there was a lack of domestic data to provide additional tailwinds for Sterling.

The recent solid, if disappointing, PMIs were helping to soften fears over the impact of Brexit upon the UK economy, weakening the influence of one of GBP’s major downside risks.

Meanwhile, Prime Minister Theresa May reshuffled her cabinet, but the major political players Boris Johnson, David Davis, and Philip Hammond all remained in their current roles.

This removed some of the uncertainty surrounding the government’s approach going forwards, and also avoided any potentially politically damaging clashes, in particular with Johnson, who is seen as a strong rival for the role of prime minister.

GBP/EUR gains were heightened thanks to a slump from the euro, with markets continuing to express disappointment over Friday’s more sluggish than expected core CPI reading for the Eurozone.

Strong confidence and retail sales figures for the currency bloc failed to provide the uplift needed for the euro to resist the pound’s advance; German factory orders posted a surprise decline month-on-month, further adding to investor gloom.

GBP/USD was stuck around opening levels, as the US dollar was strengthened by hawkish comments made by Federal Reserve official John Williams over the weekend.

Williams suggested that the median market expectations for three interest rate hikes this year are accurate, as well as forecasting strong GDP and a fall of several basis points for the unemployment rate over the coming year.

What’s coming up?

Today’s UK data has already been released, which could leave the pound vulnerable to the impact of political developments.

Markets are disconcerted by the resignation of Education Secretary Justine Greening, who refused to move to the Department for Work and Pensions in the latest reshuffle; Greening was staunchly pro-Remain, so the loss of a Europhile voice in the Cabinet has unsettled traders.

Much of the day’s Eurozone data has already been released as well, although the Eurozone unemployment rate for November is due out shortly.

There is little on the US data calendar today, but a speech later from Federal Reserve official Neel Kashkari could provide some more clues on the likely direction of monetary policy this year.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

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