Pound gains as UK ‘averts’ leadership battle

Bloomberg

The pound climbed to the strongest level in almost a month on optimism that a crisis engulfing UK Prime Minister Theresa May’s government won’t spiral into a leadership challenge.
Sterling gained against both the dollar and the euro in London trading as traders judged the resignation of Brexit Secretary David Davis would make a soft exit from the EU more likely, even as Brexiteer Dominic Raab was announced as Davis’ replacement. Brexit-supporting lawmaker Jacob Rees-Mogg said that a confidence vote in the prime minister wasn’t immediately in the cards.
“The pound is able to live with ministerial resignations as long as that is the extent of the fallout,” said Viraj Patel, an analyst at ING Groep NV. “At this stage, one is inclined to interpret Davis’ resignation as a sign that the UK government is steering toward a softer Brexit — which is the more powerful, positive pound driver.”
The UK currency may be vulnerable if Davis’ resignation sparks a leadership challenge for May, while the appointment of Raab as Brexit secretary isn’t a major game changer, said Patel. On the other hand, if May manages to stem the rebellion it will be seen as giving the green light for her to pursue a closer relationship with the EU.
For all this weekend’s headlines, the pound is still trading within recent ranges. Markets have cautiously welcomed May’s proposed “soft Brexit” strategy but are waiting to see how the EU responds, said Mitul Kotecha, a senior currency strategist at TD Securities in Singapore. “The path ahead is complicated.”
The pound rose 0.4 percent to $1.3334 as of 10:32 a.m. in London, touching the highest since June 14. It was up 0.2 percent to 88.29 pence per euro. The next few days could be quite noisy in terms of the politics, so investors will be waiting on the sidelines for the right opportunity, Patel said.