The British pound fell against the U.S. dollar and the UK’s leading benchmark FTSE dropped amid more uncertainty coming from PM Boris Johnson’s administration.
UK Health Secretary Sajid Javid said in a tweet that he quit Johnson’s government and that he’s lost confidence in the Prime Minister. Meanwhile, the Chancellor of the Exchequer Rishi Sunak also announced his resignation on Tuesday.
The pound registered a decline of 1.4% right after the news, after earlier falling as much as 1.8% to 1.1899, the lowest since March 2020.
“Slowing growth, and other economic factors, are likely to have had more of an impact on the pound,” said Nigel Green, CEO of deVere, a leading independent financial advisory and fintech.
“But there’s no getting away from the fact, this all creates much more uncertainty for sterling,” he said.
Warned in May
Investors were warned in late May to hedge against an ‘existential’ crisis with the pound by Wall Street analysts as the British currency faces issues usually only seen in emerging markets.
Whilst sterling strengthened 0.2% that month, it remains the third-worst performing major currency this year. It has weakened 8% to $1.2468 in 2022.
Green doubled down on an earlier comment made during Boris Johnson’s previous confidence vote, noting that he believed there will be a leadership challenge before the next election.
When names are put into the ring to become the next leader, and policy agendas of the frontrunners are known, “the pound can be expected to become highly volatile – just as it did during the Brexit negotiations,” he explained.
“The issues laid bare by Johnson’s possible successors that will impact the pound would include the UK’s relationship with the EU and single market access, fiscal stimulus and the Northern Ireland protocol, amongst others.”
Green concluded that, “Sterling is falling out of favour currently for a myriad of reasons, including politics.
“In turn, this will favour the dollar, the euro and others.”