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Pound rises on Boris Johnson resignation

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·Business Reporter, Yahoo Finance UK
·2-min read
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Prime Minister Boris Johnson. The pound rose on the back of the resignation
There was some instant buying of the pound on Thursday, which gained against the euro as investors reacted to the news of Boris Johnson's resignation. Photo: Press Association

The pound rose against both the dollar (GBPUSD=X) and the euro (GBPEUR=X) on Thursday on the back of Boris Johnson’s resignation as prime minister.

Sterling climbed to $1.1980 after the news, up 0.5%, or half a cent, off its recent two-year lows as traders hoped the PMs departure would bring more political stability.

However, the currency is still trading near its lowest level since the COVID-19 pandemic thanks to fears of a UK recession.

“The resignation of Boris Johnson as UK PM will breathe a sigh of relief for UK investors as it curtails the uncertainty of a government in name only,” Walid Koudmani, chief market analyst at XTB, said.

“We saw some instant buying in GBP which gained against the euro as investors reacted to the news of his impending resignation.

“Make no mistake however, the pound remains severely weak due to the dire state of the UK economy which is underperforming its peers, likely to enter into a recession while the Bank of England refuses to hike interest rates aggressively to deal with the escalating inflation.”

He added: “The new prime minister, whoever that is, has a massive job on their hands.”

The pound has had an extremely difficult first half this year, logging its worst half-year drop since 2016.

There are further expectations for more downside in the second half of the year, particularly against the US dollar given this year’s strong safe haven demand.

In London, the FTSE 100 (^FTSE) stayed firmly in positive territory since the announcement, helped by the still weaker pound. It was rallying from oversold conditions after a sharp sell-off earlier in the week.

Read more: FTSE rises as Boris Johnson set to resign as prime minister

Naeem Aslam of Avatrade said: “There is no doubt that Boris Johnson has failed the public on many occasions and the fact that he will be leaving is helping the currency and FTSE 100 for now.

“However, political uncertainty has increased as a large number of political cards will come into play where the new Prime Minister may try to persuade the public by adopting more loose fiscal policy which could make the BOE’s job even more difficult which is trying to bring it down.”

Johnson is set to make a statement to the country later today after speaking to Sir Graham Brady, chairman of the Conservative 1922 Committee, to inform him of his decision.

He will continue as PM until the autumn. A Conservative leadership race will take place this summer and a new leader will be in place in time for the Tory party conference in October.

Watch: Boris Johnson to resign as prime minister

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