LONDON – The pound is heading for its worst week of losses since the “flash crash” in October last year, with analysts blaming UK politics for the poor performance.
Sterling has been under pressure all day Friday amid speculation that Prime Minister Theresa May could be ousted by her own party. The pound is now down around 2.5% against the dollar for the week, with Kathleen Brooks, research director at City Index, describing the performance as a “bloodbath.”
Sterling is down 0.5% against the dollar to $1.3053 at 4.35 p.m. BST (11.35 a.m. ET), a one-month low. At the same time, the pound is down 0.6% against the euro to €1.1132.
- Markets Insider
- REUTERS/Stefan Wermuth
Analysts are blaming the collapse on the fallout from the Conservative Party Conference, held at the start of the week, which inspired negative headlines about the ruling party and has sparked a plot to oust Prime Minister Theresa May. Former party chairman Grant Shapps has emerged as the leader of the plot.
“The sharp depreciation of the British Pound continues to reflect the growing concerns about the Conservative Party leadership, following May’s poorly received keynote speech on Wednesday,” Lukman Otunuga, a research analyst at FXTM, said in an email on Friday morning.
Connor Campbell, a financial analyst at SpreadEx, said: “While on Thursday there was a web of reasons why the pound was driven lower, this Friday’s decline seems to have a more singular reason behind it: Tory infighting.
“Another Tory leadership battle would be seriously bruising for the pound, especially since, at the moment, there is no real clear – or, at least, market-preferred – candidate to replace May.”
Nomura says in a strategy note sent to clients on Thursday: “If we see headlines of Theresa May’s resignation, we’d expect the pound to suffer and quickly. Nonetheless, if Tory rebels look to the long game, we think it’s too early to push for that resignation and we’ll go back to trading the BoE and upcoming EU negotiations, both of which may present upside surprises versus low market expectations.”
Barclays’ James Hassett agrees. Barclays’ head of FX trading told Business Insider: “We’ve seen the market adopt an adverse tone with sterling, with discretionary investors selling due to the political uncertainty that has followed the conference – this has undone some of the sterling gains that we saw from the Bank of England’s recent signal for a rate hike. However, we believe the market will return its attention to the rate hike in the coming weeks.”