Sterling edges up as UK’s Sunak brings back Cameron in cabinet reset

LONDON (Reuters) -Sterling edged higher on Monday after British Prime Minister Rishi Sunak reshuffled his cabinet, appointing former PM David Cameron as foreign minister and firing interior minister Suella Braverman.

The reaction in the financial markets was modest and analysts said the direction for sterling in the near-term would be driven by economic data and the outlook for the U.S. dollar, rather than British politics.

Sterling was last trading at $1.2248, 0.2% higher on the day. Against the euro, the pound stood at 87.28 pence – also up 0.2%.

Benchmark 10-year UK gilt yields were down 3 basis points at 4.31%, off a session peak of 4.363%, while the FTSE 100 rose 0.6% to trade near the day’s high.

“Cabinet reshuffles are a domestic political issue,” Geoff Yu, senior macro strategist at BNY Mellon, said.

“Any shift in the finance ministry is unlikely, so for sterling, the outlook is really about the dollar.”

A more immediate risk for investors in UK assets will be Wednesday’s consumer price index (CPI) for October, which economists polled by Reuters expect to have risen by 4.8% year on year, after September’s 6.7% increase.

A reading of 4.8% would be the smallest for two years, as the cost of essentials such as energy and food has increased at a far slower pace, or even fallen, in recent months.

Next week also brings the autumn budget of finance minister Jeremy Hunt, who kept his job in Sunak’s reshuffle.

Hunt said on Friday the autumn statement, due on Nov. 22, would focus on reducing inflation to revive growth, after data showed Britain’s economy avoided recession in the July-September period, but failed to grow.

The reshuffle was the latest reset for a prime minister whose party is badly lagging the Labour Party before an election expected next year. The return of Cameron suggested Sunak wanted to bring in more centrist, experienced hands rather than appease the right of his party which supported Braverman.

“Braverman’s sacking doesn’t seem to have had an impact, in fact we don’t expect either the reshuffle or the autumn statement to significant impact in FX markets, with Sunak unlikely to do anything too radical and a general election still too far out to be a consideration for FX markets,” Monex analyst Nick Rees said.

“Key for the pound this week will be UK CPI Wednesday,” he said.

(Reporting by Dhara Ranasinghe, Lucy Raitano and Amanda Cooper; Editing by Andrew Heavens)