The weak economy and the Bank of England’s money printing have ensured that the pound has been the weakest major currency over the past three years. Now “a fresh source of vulnerability” may be about to emerge, says FXPro.com’s Michael Derks – the News International phone-hacking scandal. “Given the rapidity with which key figures in the scandal are falling on their swords”, the markets are arguably being complacent about the risk this will “ensnare the prime minister and his party”. After Cameron, the scandal could claim George Osborne, who is also implicated. Tory blogger Iain Dale now says that it’s “no longer preposterous” to imagine the scandal bringing down the PM.
The broader point is that all governments have “a stock of goodwill to use up”, says Buttonwood on Economist.com. This government in particular, a coalition trying to push through a major austerity programme, needs a great deal of it. But “once a government gets bogged down in a scandal, it can be very hard to recover”. Given all this, “it might take only a small shift of opinion to turn sterling (and gilts) into a target for traders to bet against”.