Pound Dives As Theresa May Fights For Her Political Life

The pound initially traded higher versus the dollar and the euro on Monday, albeit off session highs, as investors cheered the potential for a softer Brexit and shrugged off political disarray engulfing the government. Whilst a resignation from Brexit Secretary David Davis, just pulled the pound off session highs, a dramatic resignation from original Brexiteer and Foreign Secretary Boris Johnson, later in the afternoon has seen the pound plummet. Whilst David Davis’ resignation was no threat to May’s leadership, Johnson’s resignation provides Conservatives with an alternative leader.

The pound initially traded higher versus the dollar and the euro on Monday, albeit off session highs, as investors cheered the potential for a softer Brexit and shrugged off political disarray engulfing the government. 

Whilst a resignation from Brexit Secretary David Davis, just pulled the pound off session highs, a dramatic resignation from original Brexiteer and Foreign Secretary Boris Johnson, later in the afternoon has seen the pound plummet. 

Whilst David Davis’ resignation was no threat to May’s leadership, Johnson’s resignation provides Conservatives with an alternative leader.

The next few hours will be critical for Theresa May as she fights for her political life, after pushing her cabinet into agreeing to a softer Brexit on Friday at the Chequers. On Boris Johnson’s resignation, the pound dived over 100 points versus the dollar from its earlier high, as domestic political risk reaches new levels. 

After months and months of kicking the can down the road, Theresa May finally stood up to the hard line Brexiteers in the hope that they may consider it too late in the day along the Brexit timeline for a change of leaders. 

Theresa May’s session in the commons today will be watched closely by traders as she faces the fury of her Conservative party over a softer Brexit.

What next?

At this crossroad there are a few outcomes. Firstly, Theresa May clings to power and continues with the soft Brexit approach. 

This could be considered the best outcome for the pound although her authority will have been damaged, once again. 

The other options involve Theresa May being ousted by her party through a vote of no confidence or resigning over the bitter infighting within the Conservatives. Both options will lay bare the Brexit divisions in the Conservative potentially leading to another General Election, the third major poll in three years. 

The political instability and the risk that Labour’s Jeremy Corbyn could slip into power make this path particularly damaging to the pound.

Global sentiment improves (at least for now)

The weaker pound along with increased global sentiment as trade war rhetoric eases has lifted the pound ahead of its European peers. The FTSE is trading almost 0.9% higher, whilst he Dax is up 0.3% on the day.

Dr Copper rallies lifting miners

The brief trade war silence has seen copper prices pick up from a near one year low last week and in doing so lifted shares in the heavyweight British mining sector. 

Copper had sunk over 14% from touching a 4 year high on June 7th, as concerns over a slowdown in the Chinese economy and trade war fears pulled the metal lower. 

China is the worlds biggest importer of copper, whose demand for the metal is directly linked to manufacturing and exports, any sign of a slowdown is quickly reflected in the price of copper. 

With several high impacting Chinese economic releases this week, copper could experience increased volatility, which could bleed through into the FTSE mining sector.

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