GBP/USD: If Boris Johnson becomes PM, volatility will rise, but Sterling may not necessarily suffer


  • UK PM May is set to step down and Boris Johnson is the leading candidate to replace her.
  • The erratic former foreign secretary may increase GBP/USD volatility.
  • Despite Johnson's Brexit credentials, he could surprise and be pound-positive.

After a tear-provoking meeting with her backbenchers, UK PM Theresa May has pledged to set a date for her departure after the upcoming Brexit vote in early June. And, she will do regardless of the result. It is now clear that "The end of May is in early June."

For pound traders, there is no time to delve into May's legacy but rather to look to the near future with the clock ticking down to Brexit, which is due on October 31st. On the same day that May faced her political executors, her former foreign secretary Boris Johnson threw his hat into the ring by saying he would run if there is a vacancy. His early announcement was well-timed, and most British newspapers put his picture on their covers alongside the news about May's upcoming resignation, portraying him as the PM in waiting. 

Johnson is the leading candidate as he is well-known and is popular among the membership of the Conservative Party. Under current party rules, MPs filter candidates until two are left. The vote then goes to the membership. Assuming he makes it to the shortlist, the road to Downing Street is paved for him.

GBP/USD already fell on the specter of PM Johnson

Johnson has a staunch supporter of Brexit. The former London mayor, in addition to his role as FM, is a eurosceptic, was one of the proponents of Brexit in the referendum, and also quit May's government over a Brexit strategy that was not "clean" or hard enough.

Markets have a clear opinion against the UK leaving the EU, and the pound dropped on the latest political developments, including Labour's decision to end cross-party talks. Johnson's probable ascent contributed a lot to the mix.

Apart from his senior posts, Johnson is known for his gaffes and erratic style. If he becomes PM, his unscripted comments may result in sharp moves in the pound. That can be taken as a certainty.

But will the pound keep on falling?

Another characteristic of Johnson is his love of himself and another one his aspiration to become PM. Long before announcing his candidacy, he wrote an admiring biography of Winston Churchill, the heroic PM during the Second World War. Political analysts saw the book as a declaration of intent: that Johnson is also aiming for 10 Downing Street. 

After achieving his career goal of entering Churchill's role, the colorful Mr. Johnson may want to cling to power more and creating a worthy legacy, like his protagonist. He may want to secure Britain's position in the world and maintain a stable economy. And for that, he may follow the footsteps of another wartime hero.  

Johnson may do a de-Gaulle on Brexit

General Charles de Gaulle fought the Germans in the war and then became France's long-serving president. He vowed to keep Algeria French but then made a 180-degree about-turn and retreated from the former colony.

Johnson may follow de Gaulle's footsteps. by stepping away from his rhetoric on Brexit and finding a compromise with the EU. And if takes this path, unthinkable at the moment, he will be instantly rewarded by a stronger pound. 

All in all, Boris Johnson cares more about Boris Johnson and than about the UK's exit from the EU, and his colorful style may result in surprising rather than dogmatic moves. His entrance to the famous house in central London may mark the bottom in GBP/USD. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD: Stuck in a range, the odds of an aggressive Fed rate cut drop

EUR/USD continues to trade a narrow range amid falling odds of an aggressive easing by the US Federal Reserve (Fed) later this month. The ECB is widely expected to keep rates unchanged, but send out a strong dovish message later this week

EUR/USD News

GBP/USD remains modestly flat as Brexit optimism confronts UK-Iran tension

While optimism surrounding the Brexit helped the GBP/USD pair to start the week on a positive note, geopolitical tensions between the UK and Iran tamed the quote’s upside as it trades near 1.2500 ahead of the London open. 

GBP/USD News

USD/JPY consolidates gains below 108.00 amid risk-off in Asian equities

Having failed to sustain the early gains above the 108 handle, USD/JPY consolidates in a tight range just below the last amid risk-off action in the Asian equities and Abe's victory. Escalating Gulf tensions and a likely smaller Fed rate cut weigh down on the sentiment. 

USD/JPY News

Forex Today: USD cheers Fed’s policy repricing, Gulf tensions rise, and Oil surges

US dollar index rises on falling odds of aggressive Fed rate cuts. Oil surges on escalating Gulf tensions. All eyes on trade and geopolitical developments.

Read more

Gold: Bounces off 23.6% Fibo. towards $1436.50/37 supply zone

Gold is again being bought as it reverses from 23.6% Fibonacci retracement of June-July advances to $1,427 by early Monday. The yellow metal now runs towards $1,436.50/37 horizontal resistance comprising early-month tops.

Gold News

Majors

Cryptocurrencies

Signatures