Pound recovers as Boris announced new PM
|As was widely expected Boris Johnson has been announced as the new UK PM, winning the Tory leadership contest with 66% of the vote. Given that he’s been the frontrunner for quite some time the immediate market reaction has been fairly quiet with the pound remaining under pressure and not far from its lowest level since April 2017 against the US dollar. Elsewhere, UK stocks are enjoying a day of gains along with their European peers with the FTSE higher by around 0.5%.
During the victory speech, the new PM avoided any major revelations as he emphasised his enthusiasm for the task ahead, while traders will also no doubt have an eye on how the new PM is received by MPs and be on the lookout for any further resignations from the Conservative party. Time is very much of the essence for the new PM and Johnson will likely waste little of it in selecting his cabinet, in what is a major decision that will not only send a message as to how he plans to proceed with Brexit negotiations, but also needs to be right to fend of the threat of a General Election.
Plans to deliver an emergency budget within the first 100 days of taking office in an attempt to protect the economy from a no-deal exit at the end of October means the Chancellor will have his work cut out.
A prominent betting exchange is offering odds of just 1.26 on another vote of no confidence this year, which equates to a 79% or roughly 4 in 5 chance that this occurs. Despite his rhetoric a no deal scenario on the same platform also appears not the most likely outcome, with a chance of 30% currently assigned.
There has been a sustained weakness in sterling of late with the currency depreciating for much of the past few months largely due to concerns surrounding Boris’s victory and the subsequent approach he will take on Brexit. His bluster on delivering Brexit is arguably the main reason for his victory, but it would not be too surprising if he softens his stance now he is in power. The fate of the new PM’s tenure and of the pound for the coming months will be almost solely determined by Brexit developments but in the coming days it would not be too surprising to see some sort of relief rally now that the news is out.
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