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At the annual Conservative party conference on Wednesday, Theresa May set out her plans for The British Dream. Unfortunately, said dream was played out as much more of a nightmare, especially for sterling. A heckler with a P45, a very persistent cough and a party motto literally falling off the stage behind her did nothing to ease current market uncertainty, in fact, it had quite the opposite effect.
The speech was sold as May’s optimal opportunity to lay out her agenda and assert herself as the ‘strong and stable’ Prime Minister ready to see the UK through the tough Brexit negotiations ahead. Instead, we saw May rather tragically attempt to promise a voice to “the voiceless” while losing her own.
In reaction to said disastrous speech, fresh rumours have surfaced that Tory MPs are plotting to replace May by Christmas, with Johnson being the rumoured favourite replacement. These whispers have sunk sterling even lower on the currency markets with the undeniable instability of May’s position knocking sterling back below $1.32 against the dollar.
The Sterling has now lost all of the gains that it had made after September’s MPC meeting when the Bank of England dropped that very solid hint on interest rates. Utility firm shares, which also fell following the catastrophic speech, have managed to recover ground lost yesterday following May’s energy price cap announcement with the overall FTSE 100 bumping up into positive territory.
What does all of this mean for the market? The speech failed to convince both the Tory MPs and the market of May’s ‘stable’ leadership qualities which will have ongoing consequences. Between the ambiguous nature of the Brexit negotiations and May’s increasingly vulnerable position in the Tory party, it looks progressively unlikely for sterling to recuperate its substantial losses over the next few months. The market requires clarity on both Brexit and leadership to recover, for the moment only time will tell which comes first.
For UK businesses with financial commitments overseas, Brexit has proved to be a significant challenge since the get-go. It is crucial that these businesses do everything possible to improve potential risks when making overseas payments.
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