Sterling bounces back on hopes of Theresa May cabinet reshuffle

he Pound suffered from its largest weekly decline in a year last week after Theresa May’s disastrous speech at the Conservative Party conference called into question her credentials as Prime Minister. A Sunday Times article over the weekend suggested that May was ready for a shake up within government in a bid to reassert her authority within the Tory Party. This, the newspaper suggested, could involve the sacking of former London Mayor and potential successor to the PM Boris Johnson from his position as foreign secretary. While such a reshuffle would unlikely dispel calls within the Conservative Party for May’s resignation, the lack of an immediate challenge to her leadership could provide some scope for a further relief rally in the Pound.

This morning’s manufacturing and industrial production data has the potential to be a major market mover for the currency when released at 9:30 UK time. Absent any meaningful surprises in this morning’s data, traders will take cue from PM May’s fresh trade and customs proposals.

German industrial production surges to six year high

Aside from the rebound in Sterling the major currencies were kept relatively quiet yesterday with US markets closed in mark of Columbus Day. We did, however, have a couple of fairly encouraging pieces of economic data out of the Eurozone that continued to suggest the economy in the currency bloc was on course for another solid expansion in the third quarter of the year.

German industrial production was particularly impressive, surging by the most since July 2011. Output in the industrial sector of Europe’s largest economy jumped by a larger than expected 2.6% in August, having declined in July. The Sentix investor confidence index was also encouraging, suggesting that consumer spending in the Euro-area could be on course to pick up pace in the coming months. The index rose to 29.7 after investors had eyed a 28.5 reading. GDP in the whole of the Eurozone looks on course to post expansion of around 0.6% in Q3, around the level that could encourage the European Central Bank to accelerate its plans to wind down its existing economic stimulus programme.

Despite the better-than-expected economic news the lack of activity in the States meant that EUR/USD was broadly unchanged for the day as investors awaited announcements later in the week. The Federal Reserve’s minutes from its September meeting will be of particular importance on Wednesday evening. US retail sales and inflation numbers on Friday afternoon should also give us a decent indication as to the likelihood of another interest rate hike by the Fed in December.