Summary:
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Brexit minister Raab resigns
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PM May losing support of her cabinet with Mcvey also stepping down
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GBP drops sharply across the board; Retail sales also miss
There’s been a sharp move lower in the pound in the last half an hour after Brexit minister Dominic Raab has announced his resignation. Sterling fell by almost 1% in a matter of minutes on the news and the announcement is reminiscent of the chequers deal in the summer where initial support from the cabinet has proved short lived for Theresa May. The announcement is a major blow for May and others will likely follow suit in offering their resignations with her position now growing increasingly tenuous. Not long afterwards fellow cabinet member Esther McVey also stepped down. It now seems probable that a vote of no confidence will be tabled, with some reports stating that the requisite 48 letters will be sent by lunchtime.
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Unsurprisingly there’s been a swoon in sterling with the currency lower by more than 1% against all of its major peers. The biggest gains can be seen in the AUD and JPY with both higher by more than 2% vs GBP. Source: xStation
Given these dramatic events on the political front, economic data is of secondary importance at present. Having said that the earlier release of retail sales will have done little to help the plight of the pound with an unexpected drop of 0.5% in M/M terms. This was below the +0.2% expected and even though the prior reading of -0.8% was revised up to -0.4% it still doesn’t look good. The core reading was similarly bad with a M/M drop of 0.4% vs +0.2% expected. The prior was also revised higher form -0.8% previously to -0.3%.
Retail sales and the core reading (ex-auto and fuel) have both pulled back of late in a concerning sign for UK consumer spending. Source: XTB Macrobond
The bigger picture for the pound looks pretty negative following this with the GBPUSD dropping to its lowest level of the week. Prior support around 1.2660 now could be seen as key and if the market breaks below there then a move back to the post-referendum lows around 1.20 (and possibly even lower) could lie ahead.
After a heavy wave of selling the GBPUSD has drifted back towards recent support at 1.2660. Should price drop below here then a move to 1.20 is possible. Source: xStation
