Theresa May’s Resignation and the Pound

Today, Theresa May officially resigned as Prime Minister of the United Kingdom. Citing “the best interests of the country” as the incentive for her departure, May announced her exit in an emotional speech outside 10 Downing Street on May 24.  As twelve MPs line up to take her place – including former foreign secretary Boris Johnson, former Brexit secretary Dominic Raab and Home Secretary Sajid Javid –  the coming weeks promise a new episode of volatility for the British Pound.

The markets and the pound have already experienced a rollercoaster ride during Brexit. Speculation around a hard, soft or non-existent Brexit has driven the markets through periods of intense volatility and uncertainty. May’s exit brings all the potential outcomes for Brexit back on the table, marking a key period for investors to speculate on the future of Sterling.

GBP in the wake of May’s resignation

The month of May was the worst for Pound since 2016. The week of Theresa May’s resignation brought fresh lows for Sterling, which sunk to its lowest since January. The Pound saw values at 1.13 against the Euro and 1.26 against the Dollar. Following the announcement of May’s resignation on May 24, the currency saw a slight recovery, with the Pound rising slightly to 1.27.

Ahead of Theresa May’s exit date, the Pound stabilised against its major peers. GBP/USD climbed to weekly highs in the light of US employment growth data and subsequent speculation about the Federal Reserve’s decision. The Pound against the Canadian Dollar also experienced welcome stability despite concerns over US-Mexico tariffs.

In the run-up to the leadership contest

The future of the Pound rests heavily on the outcome of the leadership contest for the next UK Prime Minister. The Tory MP who is elected to take over the role will be tasked with steering Brexit to its final conclusion and deciding on the future of the UK – and this will have dramatic consequences for the Pound itself.

Leading the contest according to recent polls is the former foreign secretary and London mayor, Boris Johnson. A recent survey conducted by YouGov for the Times found that 39% of Tory MPs wanted Johnson to become Prime Minister, followed by Raab in second place with 13% and Javid and Gove with 9%.

Johnson’s position in the leadership race has strong potential consequences for the Pound. Notoriously in favour of a hard Brexit, Johnson is one of the candidates who may be more likely to drive the UK into a no-deal Brexit – especially given the “we’re out, deal or no deal” messaging of his official campaign video.

In the event of a no-deal Brexit

Speculation around the effects of a no-deal Brexit on the Pound is beginning to rise. The Union Bank of Switzerland (UBS) has released recent data to suggest that a no-deal Brexit could see the Pound falling as much as 10% against the Dollar. With each of the potential PM candidates pursuing a harder Brexit than Theresa May’s rejected deal, the Pound is under pressure as the contest begins.

Theresa May’s exit triggers a fresh round of Brexit uncertainty for the Pound and the markets. Traders will watch with baited breath as the leadership race continues, and how the future shapes up in the wake of Brexit, deal or no deal.

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