The pound has began the week on the front foot, with sterling looking to recover after some fairly hefty declines seen last time out. The FTSE 100 is little changed on the day as the market remains well supported above 7500.
Tory infighting threatens GBP
For sterling, the week ahead will likely be driven by the latest UK political developments with the government currently under pressure both domestically and abroad. Questions surrounding the levels of support for PM May from within her own party refuse to go away, and the internal issues are posing a very real threat to the government’s unity as we approach a critical period in the Brexit negotiations. Considering the pandemonium that ensued immediately after last summer’s referendum there has been a remarkable sense of calm in the markets for the vast majority of the time since, but this period of good faith could well be coming to an end. The fifth round of Brexit talks on separation issues begins today and there has been little by the way of tangible progress made thus far.
12 months on from flash crash GBP remarkably calm
Saturday marked the first anniversary of the flash crash seen in the pound, when the currency plummeted around 9% in less than a minute. The precipitous drop raised concerns as to the credibility of the currency revealing an alarming level of volatility that is not usually associated with the most widely traded FX markets. The drop in fact recorded the low watermark for the pound which has since enjoyed a fairly strong recovery. However, recent events are threatening to disrupt what has been a solid year so far for sterling, despite the unexpected outcome of the general election.
Whilst there has been some small scale re-locations announced amongst the banks it appears that most firms have continued with their business as usual since the Brexit vote, acting in the belief that a satisfactory outcome - likely involving a transitional deal beyond the March 2019 deadline set by the triggering of Article 50 - will be achieved. Should the latest round of talks yield no real progress once more, then businesses will likely grow increasingly tetchy and should they start to lose faith in the government’s ability to secure a smooth and orderly exit from the EU then there could well be further weakness in the pound ahead.
Gold shares look to regain their shine
Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) are the two biggest gainers on the FTSE 100 this morning, with both shares experiencing a gain of approximately 1%. Gold futures jumped higher late on Friday afternoon after reports of plans for another North Korean missile test saw investors seek out safe-haven assets.
The market had earlier in the day fallen to its lowest level in more than 8 weeks despite an unexpected drop in the US NFP report, and any further geopolitical tension will likely boost both Randgold and Fresnillo. EasyJet (LON:EZJ) is the worst performer on the benchmark with the budget airline seeing some selling after a strong run higher of late. BT (LON:BT) is also in the red with the telecoms firm back near its 52-week low at 276.