Pound Falls Amid Weak Data and Return of U.K. Political Drama

(Bloomberg) -- The pound fell following weak economic data and uncertainty over a reported reshuffle of Prime Minister Theresa May's top team.

Sterling dropped after a release showed U.K. consumers curbed spending for the first time in five years in 2017, with broad dollar strength also weighing on the currency. A separate report showed U.K. house prices fell for the first time in six months in December. Meanwhile, May is reported to be considering creating a position for a minister in charge of contingency planning for a no-deal Brexit as part of a cabinet reshuffle.

In terms of the pound, “the only point of interest is the question of a minister covering for no-deal exit,” said Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce. “Does this suggest that the U.K. is starting to really consider the post-Brexit scenarios?”

The reshuffle is unlikely to weigh on the pound directly, according to Stretch, although appointing a minister to plan for a crash EU exit could be seen as supporting May's previous claim that no deal on Brexit is better than a bad deal. This may help explain why euro-sterling risk-reversals signal investors expect the U.K. currency to weaken versus the common currency, with those on the three-month tenor suggesting the pair will move higher.

The pound fell 0.3 percent to $1.3528 and was little changed at 88.62 pence per euro. The yield on 10-year U.K. government bonds slipped two basis points to 1.23 percent.

To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Scott Hamilton

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