UK politics has pushed its way to the forefront as the crisis surrounding the future of PM Brown and indeed the Labour government has heightened.
The crisis has been bubbling for days, intensifying earlier in the week after the resignation of several cabinet ministers and talk that Chancellor of the Exchequer Darling could be ousted by PM Brown at today's cabinet reshuffle.
In the event, the Chancellor kept his job and it is now the PM who is looking vulnerable. Yesterday unsubstantiated rumours of Brown's resignation hit the pound heavily. Today, the pound has remained under pressure due to the perceived likelihood that the PM's resignation may still be offered. Adding to these fears was a damaging resignation letter overnight from work and pensions secretary Purnell calling for the resignation of the PM. The opposition continue to call for a general election. Previously it had been expected that the UK govt would struggle on until May before going to the polls.
Right now it seems possible that an election could be brought forward. However, under the rules Brown can stay on as leader of the Labour party unless 70 of the 350 labour MPS call for a leadership contest. As yet, only a handful are calling for a replacement but the weekend will be a testing time for the PM. Cable has run into support in the USD1.6025 area, but the near-term outlook is vulnerable. EUR/GBP ran into resistance around 0.8850. UK PPI data was completely outshone by the political news. May PPI input fell by a much lower than expected -9.4% y/y, suggesting that the weakness of the pound since the start of the financial crisis is not prompting inflationary pressures. PPI output was in line with expectations at a moderate 1.2% y/y,
EUR/USD has edged lower in European hours, however, it continues to hold around last night's close. USD/JPY has continued yesterday's uptrend though is currently testing technical support in the 96.80 area. USD/CAD is off this morning's highs though CAD buyers are wary given yesterday's strong references by the BoC to the CAD's rise. The SEK has remained under heavy pressure on the back of its links to Latvia and the latter's unsuccessful bill auction earlier in the week.
Key this afternoon will be the US May payrolls release. The market is expecting a fall of -520K and an unemployment rate of 9.2%. Canadian May employment is expected to fall by 36.5K.
