Sterling is into its 4th day of rallies this morning, its best performance for 2 months, as we get ready for change of the tenants of 10 Downing St.
Politics and stability have been rare commodities since the vote but the ascent of Theresa May to the Prime Ministership is the main booster of sterling. Of course, political risks still remain as we are no closer to knowing what relationship the UK will have with the EU, whether the Tory policy of austerity will survive or if we can expect a general election in the coming months.
We also have to think that the almost certain cuts in interest rates, that could begin as early as tomorrow, will negate this recent sterling strength.
There are still very real doubts in my mind that the Bank of England will cut rates tomorrow. The Monetary Policy Committee has been loathe to countenance a move into negative interest rates and that means that they only have 50bps to play with.
I personally think it would be very unwise for a central bank to fire its remaining rounds with little knowledge or certainty as to the size of the enemy it faces.
That is not to say that a hold in policy is a sterling positive; if they can’t do it with rates or QE yet you had better believe that some form of forward guidance and jawboning will be deployed to help sterling on its way.
Elsewhere it was a fine run for the riskier currencies yesterday such as sterling with the yen, the ultimate haven currency taking a bit of a pasting. USD/JPY looks to have rejected the 105 level for now and we are still awaiting a concrete decision on how big and far spreading any stimulus from the Bank of Japan and Japanese government may be.
For now, while stimulus is talked up elsewhere and equity markets are spiking to new record highs, the yen is being sold to fund those bets.