Rishi Sunak Wins the Race to Become PM Delivering Early GBP/USD Support

UK politics took another twist this week, with Rishi Sunak becoming the fifth British Prime Minister in six years.

Overnight, news hit the wires of Sunak winning the Conservative Party race to replace outgoing Liz Truss.

Two-party politics has shown its Achilles Heel since the Brexit Referendum vote. Despite in-party fighting and rebellions, the Blues have continued to lead the country since David Cameron’s election victory in 2010.

Theresa May and Boris Johnson lasted less than four years, forming the list of shortest-serving UK Prime Ministers in modern history. However, Liz Truss will become the shortest-serving Prime Minister after announcing her resignation just 44 days into office.

The long list of short-serving PMs gives Sunak the unenviable task of reuniting the Conservative Party. More importantly, the new Prime Minister has to navigate the country through the current economic and political crisis.

On Monday, Sunak reportedly addressed parliament, saying,

“We now need stability and unity, and I will make it my utmost priority to bring our party and our country together.”

However, Sunak will face a tall order in uniting the Party and the nation. Economic turbulence means that the government will have to tighten the purse strings.

The timing couldn’t be worse for the incoming PM. Food and energy prices have crippled spending power, and the Bank of England is on a mission to bring inflation to target with aggressive policy moves that will leave voters looking towards a bleak winter.

Today, King Charles will appoint Sunak as Prime Minister, and the skeptics will wait in the wings to knock him down. Ironically, the opinion polls stand in Sunak’s favor.

The Polls and the Financial Markets Send Mixed Messages

According to YouGov, the voting intention survey from October 21-22 has the Conservatives with just 19% of the vote, down 4% from the previous voting intention survey, dated October 15-16. Notably, the Labour Party has seen its share rise from 51% to 56%.

Looking at the Voting Intention Tracker, the Tory Party’s troubles began in November, coinciding with the Party’s loss of confidence in Boris Johnson.

Based on the latest voting intention polls, a General Election would likely see the Tory Party stronghold of 12 years wiped out. An election could even leave the Tory Party in the wilderness for years to come.

The knowledge of such an outcome should give Sunak some space to begin repairing the damage. He may not have long. Liz Truss lasted 44 days. Sunak will be mindful of how one wrong move can lead to his and possibly the Tory Party’s ousting.

For the Pound, Sunak’s victory appears to have provided some support. This morning, the GBP/USD was up 0.17% to $1.12967, with UK Gilt yields easing back. However, the incoming Prime Minister needs to spell out his policy goals for the markets to show what it really thinks.