Pound rallies as UK PM’s exit plan spells relief for traders

Bloomberg

The pound strengthened and UK stocks rise on reports that Prime Minister Boris Johnson is planning to resign.
Investors said the news may spell some initial relief for UK assets, which have been battered by the country’s high inflation, weak economy and the political uncertainty.
Sterling rises as much as 0.6% to $1.1994. The FTSE 250 Index, which tracks UK mid-cap stocks, gained 0.9% on Thursday.
“FX markets will be hoping that any new leader would strive to restore party unity and allow the Tories to govern more effectively at a time when a cost of living crisis casts a long shadow over the economy,” said Valentin Marinov, head of G10 currency research at Credit Agricole.
Officials familiar with the premier’s thinking have told Bloomberg News that Johnson intends to leave. The political pressure has been cranking higher after a string of high profile resignations and calls to resign from senior figures, including his newly appointed Chancellor of the Exchequer Nadhim Zahawi to step down.
Other strategists said the moves in the pound may only be temporary.
“The pound rallying on the Boris resignation news is just odd,” said Jordan Rochester, a currency strategist at Nomura, noting it’s not clear the next leader will give the economy a fiscal boost. “But I have had a few folks say to me they think this is a reason to buy GBP so clearly it’s a sentiment driven move.”
Britain’s latest political turmoil is adding to an increasingly uncertain UK outlook, leaving investors holding back from big bets on the country’s markets for now.
Global risk sentiment and Bank of England policy remain the key drivers, depressing the currency to trade around its lowest since March 2020. Still, any policy changes from Johnson’s new appointments, such as tax cuts — or a new administration altogether if he is forced out — could quickly have market implications.
“The impact on sterling from Prime Minister Johnson’s political troubles in recent months has been relatively limited. But the resignations of two key ministers yesterday have sharply increased the probability that he will leave office this year according to UK bookmakers. This potentially adds a negative political factor to the existing negative policy and macro factors that have been weighing on sterling.”