By Agence France-Presse
The pound dipped toward recent lows Tuesday, with arch-Brexiteer Boris Johnson set to win the race to become Britain’s next prime minister.
Johnson, who has vowed to take Britain out of the European Union on the October 31 deadline with or without a deal, is widely forecast to beat rival Jeremy Hunt in the battle to become Conservative Party leader — and therefore prime minister. An announcement was due at about 1045 GMT.
Ahead of the news, sterling dipped to $1.2427 on fears of a dreaded “no-deal” split that severs trade ties abruptly. That was not too far from last week’s two-year low of $1.2382.
The European single currency meanwhile rose to 90 pence. That compared with last week’s peak of 90.51, which had been the highest level since mid-January.
‘No photo finish’
“Sterling is trading in the red as we await the result of the Conservative leadership contest,” Oanda analyst Craig Erlam told AFP.
“Traders are clearly not expecting a photo finish in this particular race and despite the pound having been hit heavily in recent months at the prospect of a Johnson victory, they clearly see opportunity for a little bit more.
“We have not yet breached last week’s lows and this may well be the final push before some profit-taking kicks in.”
Former London mayor Johnson will immediately march into a head-on collision with the 27 EU leaders and his own parliament should he beat his underdog rival, Foreign Secretary Hunt.
The weak pound meanwhile handed a boost to the London stock market, because it makes exports cheaper for buyers using stronger currencies.
“Sterling declines are helping to drive the FTSE 100 higher … with markets gearing up for a likely Boris Johnson leadership,” added IG analyst Joshua Mahony.
“Declines for sterling come as no surprise, with traders reflecting their expectations of a government led by a prime minister who has laid out a clear pathway for leaving without a deal in October.”
Some analysts however are not entirely ruling out the prospect that Hunt could yet pull off a shock win.
“What would be far more interesting is if Hunt pulls off the latest and probably biggest shock and defies all odds to become prime minister,” noted Erlam,
“Given how he’s seen as a far more moderate reformed Brexiteer, this would likely signal a softer Brexit and much reduced chance of no-deal.
“This may be a stretch too far, even if this, the age of political shocks,” he conceded.