GBP/USD tumbles as internal politics take over from external politics

The British pound was the biggest winner against the dollar last week. The greenback plunged amid comments endorsing a weak dollar by US Treasury Secretary Steven Mnuchin. Sterling played a game of catch-up with other currencies and also enjoyed a positive comment from French President Emmanuel Macron that hinted towards a softer Brexit deal.

Well, the US dollar is now in a phase of correction: the big fall was stretched and Mnuchin’s boss, Donald Trump, had upbeat words about the currency. A bounce back was necessary and currently seems as a mere correction, not a change of course. Nevertheless, the gains are also felt against the pound.

And in Britain, the focus switched from external politics to internal ones. According to reports over the weekend, PM Theresa May is under pressure once again. Her opponents have reportedly given her three months to shore up the situation or else quit. Britain faces a series of local elections in the spring.

In addition, another report suggests that a leadership challenge is mounting. According to the rules of the ruling Conservative Party, if 48 MPs send letters calling for a leadership change to the party’s 1922 committee, MPs can vote to oust the PM.

May has been enjoying a rare period of respite after she eventually secured the first phase of the Brexit deal. But now it seems that after the not-so-great government reshuffle, Foreign Secretary Boris Johnson and others have a growing confidence against May. Opinion polls, which have showed Labour gaining ground since the elections in June, have also stabilized and even saw the Tories gaining some ground. So, elections are not so scary anymore.

All in all, the dominance of the internal strife has not helped the pound and its falls is quite significant: GBP/USD dropped all the way down to 1.4070. It had already traded at 1.4344 last week, rising from just below 1.40. So, with todays downfall, pound/dollar has erased more than 50% of the gain.


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