Research Team at BBH, notes that the sterling has appreciated by nearly 5% this month and has recovered the bulk of the losses suffered following the deal with the EU and London Mayor Johnson's formal declaration of supporting efforts for the UK to leave the EU.
“However news that Iain Duncan Smith (IDS), the Minister of Work and Pensions in Cameron's cabinet resigned ostensibly to protest the austerity in last week's budget presented by Osborne, could see those gains pared. The recent jump in speculative purchases of sterling suggests that many longs are in weak hands, and the loss of momentum could spark a reversal.
However, IDS favors Brexit, and his departure underscores our concern that regardless of the outcome of the June referendum, a political crisis is brewing. Far from healing the Tory party as Cameron hoped, Osborne's fear tearing the party further apart is materializing. The referendum provides the issue around which the opposition within the Tory Party can coalesce.
Osborne, who has often clashed with the backbenchers, may emerge weaker as his budget was singled out as the proximate cause. Johnson, who will no longer be London's mayor after the May election, is widely touted as Cameron/Osborne challenger. His candidacy is likely helped by a broadening the criticism of the government. Labour appears to be trying to exploit and widen the rift within the Tory Party. However, the program put forward by the party's leadership is divisive in their own right.”
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