(Bloomberg) — Manchester takes over from London as the focus for pound traders this weekend, as the Conservative Party’s annual conference there may bring more drama around the U.K.’s fraught Brexit debate.
The event has previously rattled investors — an unexpected 2016 policy shift from then Prime Minister Theresa May saw sterling’s worst weekly run since the Brexit vote. A year later, the meeting showcased May’s waning popularity and stirred speculation about a leadership challenge, driving the pound down. This time, investors will be watching for any hardening of stance by Prime Minister Boris Johnson, who has vowed to exit the European Union next month with or without a deal.
The industrial city in north west England — home to two of the country’s biggest Premier League soccer clubs — is accustomed to being at the center of sports betting markets. It crosses the currency-market radar less often, but as the Oct. 31 Brexit deadline draws nearer, strategists are on alert for any political insight from the Sept. 29-Oct. 2 gathering.
“The Tory party conference is probably the single most important event for sterling next week,” said Ned Rumpeltin, European head of currency strategy at Toronto-Dominion Bank. “The prime minister will need to rally his troops and energize his Brexit base. That means the tone is likely to harden significantly toward the EU.”
Sterling plunged in recent days, hitting the lowest level in almost three weeks as bad news abounded on the political and economic fronts. The EU was said to be losing faith in Johnson’s ability to strike a Brexit deal by the Oct. 31 deadline, while Bank of England policy maker Michael Saunders warned the central bank may need to cut interest rates to support the economy even if a Brexit deal or delay is secured.
Possibilities tied to Brexit still remain wide open — from a delay or a no-deal Brexit to an early election. Johnson challenged his opponents earlier this week to call a national ballot, asking Parliament to “face a day of reckoning with the voters.” The theme could develop this weekend, according to Koon Chow, a strategist at Union Bancaire Privee, although he sees an election to be sterling-positive in the longer term.
“It might not prove to be that bad for the pound because if we have a Parliament that is less divided, the chances of a government producing any kind of deal improve, removing uncertainty which is probably the main thing weighing on the sterling,” he said.
Traders will also be watching U.K. data next week — Thursday’s services-sector data more than the rest. Reports on gross domestic product and manufacturing are also due earlier in the week, with recent prints disappointing the market.
All things considered, it’s best to stay short the pound for now, according to Societe Generale SA strategist Kenneth Broux. He recommends selling the U.K. currency into the October EU summit, until progress is made on the contentious Irish border plans that have so far blocked the two sides from reaching a Brexit deal.
To contact the editors responsible for this story: Paul Dobson at [email protected], Anil Varma, William Shaw
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