The British has posted considerable losses in the Monday session. In North American trade, GBP/USD is trading at 1.3108, down 0.61% on the day. On the release front, British Rightmove HPI declined 0.8%, its third decline in four releases. In the US, the sole event is the Federal Budget Balance, with a deficit of $58.2 billion expected. On Tuesday, the UK releases a host of inflation indicators, led by CPI. The US will publish Core CPI and CPI.
The pound has started the week on a sour note, dropping close to the 1.31 level. Investors are wary as Prime Minister Theresa May is facing serious challenges. Two ministers have been forced to resign from May’s cabinet in recent weeks, and Foreign Secretary Boris Johnson is been criticized for comments about a British national currently in detention in Iran. May appears to have lost control over her cabinet, with senior ministers openly attacking each other and questioning government policy. On Monday, British media reports said that 40 MPs have signed a letter of no confidence in May’s leadership – a worrisome sign that her days at 10 Downing Street could be numbered.
The Brexit talks are moving slowly, and one major sticking point is the size of Britain’s divorce bill. The European Union is demanding EUR 60 billion, while Britain has countered with an offer for EUR 20 billion. Britain wants to move on to discussing a trade deal with the continent, but the Europeans are insisting on more progress on the divorce bill as well as on other non-trade issues. If the sides still remain deadlocked in December without no deal in sight, hardliners on both sides could derail the talks completely, which would send shivers up the spines of investors and hurt the British pound. The Europeans are also wary about the ability of Theresa May to deliver the goods, given her continuing struggles at home. Two ministers have been forced to resign from May’s cabinet in recent weeks, and May hasn’t been able to present a coherent Brexit policy to the Europeans or to the voters at home, further eroding confidence in her leadership.
