FTSE holding key support as GBP slides

After the weakness seen in the FTSE 100 towards the tail-end of last week, today has been fairly quiet with the benchmark holding above a key technical level around the monthly lows of 7420. The pound has begun the week on the back foot following reports over the weekend that 40 Tory MPs have agreed to sign a letter of no confidence in Theresa May.

Potentially pivotal week for the pound

The weakness seen in sterling is providing some support to the FTSE this morning and both markets have the feel that they could be close to the next significant move. Tomorrow sees the 1st piece of inflation data released since the historic BoE rate hike and traders will be keenly watching the CPI reading to see if it increases further above the Bank’s 2% threshold. Andy Haldane, BoE’s chief economist, has been quoted this morning in a blog saying that he sees UK CPI staying above target for the next few years and even a small increase in Tuesday’s release is unlikely to cause a lasting positive impact in the pound and the risk appears to be more skewed to the downside. Wednesday sees the latest employment data from the UK published before retail sales figures are due out on Thursday. The latter could prove to have the bigger impact on the market with a release just this morning from the British Retail Consortium (BRC) showing footfall in UK retailers fell by 2% Y/Y in October in what is a worrying development ahead of the crucial Christmas period.

Sterling erases last week’s gain

Despite a heavy economic calendar, politics could well provide the trump card going forward especially if there is a real existential threat to the PMs position. Despite the disastrous general election this summer Theresa May has managed to maintain control and fend off any threats to her leadership. However, the pressure is growing on the PM with the Sunday Times claiming that 40 Conservative MPs had agreed to sign a letter of no confidence in Mrs May with the news coming shortly after two cabinet ministers left their roles. The story bares a striking resemblance to that seen following May’s speech at the Tory party conference which led former Conservative chairman Grant Shapps to claim to have the backing of “about 30” MPs who also wanted to oust the PM. However, both sides of the party are cautious of pushing too hard for a change of leadership, in part because there is no clear challenger for the role and partly because they fear things could become even worse. Eurosceptics are concerned that replacing May could disrupt Brexit whilst pro-European Tory MPs are mindful that her replacement could push for a harder Brexit.