Can Mordaunt Stabilise May’s Shaky Authority?

Above: Penny Mordaunt, will her appointment to Cabinet help stabilise May's Govenment? Image (C) pennymordaunt.com

UK Prime Minister Theresa May has made a new appointment to Cabinet and initial reactions suggest she has widespread support across the Conservative party - the promise of stability at the very top can only be good for the value of the British Pound going forward.

Penny Mordaunt has replaced Priti Patel as the new Secretary of State for International Development.

The appointment could have implications for the value of a politically-sensitive Pound Sterling if it helps Prime Minister Theresa May shore up her authority and set aside questions over her Government's longevity.

What we know is Mordaunt was a Leave campaigner in the EU referendum and she therefore fulfils the role of balancing the Cabinet between Remain and Brexiteer interests; it is likely that a Remain campaigner would have triggered division.

Initial reactions from across the party's Brexiteer bloc suggest the appointment is a good one.

Theresa May was tasked with appointing a new Secretary of State for International Development following the resignation of former office-holder Priti Patel on Wednesday, November 8.

Commentators have made much about how the British Pound fell on the Patel resignation saga, however Pound Sterling Live did not cover the event from this angle as we believe it was ultimately a non-story with regards to the Pound and that the currency is merely gyrating around familiar levels ahead of further clarifications on Brexit due Friday.

Indeed we believe the real story with regards to the UK Government was always about who replaces Patel as it sends a notable signal to markets as to potential travel of the UK Government and Brexit talks.

"The conflict within the government and the obvious lack of control May has over her Ministers is not making the negotiations with the EU, which will be resumed today, any easier," says analyst Antje Praefcke at Commerzbank. "How is a country going to negotiate in a unanimous and unified manner to the outside if within the ranks government members are tearing each other to pieces?"

As a result, in Praefcke's view, "the downside risks in Sterling continue to dominate, above all if disappointing economic data is added to the mix".

But does the appointment of Mordaunt shore up May's own position, stabilise Government and allow focus to return to the issues that matter? it is too early to say, but initial reactions are good.

If the latter then we believe this will be a positive for the Pound in that it deals with some of the Sterling-related weaknesses cited by Praefcke.

Stability in the UK allows for a unified and credible negotiating position in Brexit talks which will likely in turn ensure a messy and disorderly Brexit is avoided. A so-called cliff-edge Brexit is a worst-case scenario for the Pound and domestic political stability is crucial to the achievement of this end-state.

From a Sterling-perspective the Mordaunt appointment is a small clog in a long-term move; at the time of writing the British Pound continues to experience directionless trade but further clarifty should certainly be forthcoming by the time the week is out.

The Pound-to-Euro exchange rate is quoted at 1.1281, the Pound-to-Dollar exchange rate is quoted at 1.3121.

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