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UK pound slides against dollar as Boris Johnson faces cabinet chaos

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Concept for banking, Finance and Economy of Britain and United States of America. Selective focus. Macro. Selective focus. Macro.
The pound slid even lower against the dollar yesterday amid the political turmoil.

The British pound has fallen against the US dollar after

from Boris Johnson's administration.

After the shock news on Tuesday of UK chancellor of the exchequer Rishi Sunak and health secretary Sajid Javid's resignation, the pound registered a decline of 1.4%.

The drop came on the back of an earlier drop of the pound-dollar pair (GBP/USD) that fell as much as 1.8% to 1.1899, the lowest since March 2020.

The pound remains the third-worst performing major currency this year, having weakened by 8% to an average of $1.2468 in the first six months of 2022.

As the UK's currency is under increased pressure with the government's instability Viraj Patel, macro strategist at Vanda Research, spoke to Bloomberg and warned the loss of Sunak and Javid “prolongs UK political uncertainty and policy impasse".

Patel added that he is bullish on the euro and Swiss franc versus the pound, stating that “GBP really isn’t a currency we would touch right now, neither from fundamental, policy and now political perspective".

Nigel Green, the CEO of deVere, echoed these sentiments and said: “Slowing growth, and other economic factors, are likely to have had more of an impact on the pound.

Read more: Bank of England issues dire forecast for UK: expect more pain and misery

“But there’s no getting away from the fact, this all creates more much more uncertainty for sterling."

Green added: “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.”

There is growing uncertainty over the future of prime minister Boris Johnson's entire government after the shock resignations of two key members of his Cabinet.

UK Health Secretary Sajid Javid said in a tweet that he quit Johnson’s government because he had lost confidence in the prime minister.

Read more: Brexit: MPs warn UK government against overselling benefits of trade deals

British Chancellor of the Exchequer Rishi Sunak listens as British Prime Minister Boris Johnson addresses his cabinet on the day of the weekly cabinet meeting in Downing Street, London, Britain June 7, 2022. Leon Neal/Pool via REUTERS
British chancellor of the exchequer Rishi Sunak listens as British Prime Minister Boris Johnson addresses his cabinet at their weekly meeting in Downing Street, London last month. Leon Neal/Reuters.

Chancellor of the exchequer Rishi Sunak issued a resignation letter stating that he felt his approach to the economy was "fundamentally too different" to that of the prime minister.

Strategist at Nomura International Plc Jordan Rochester wrote in a note Tuesday that "when your chancellor and health secretary both resign it’s only a matter of time before a prime minister is out".

Political analysts now believe it is highly likely there will be a leadership challenge before the next UK General Election.

Watch: Cabinet meets as PM comes under more pressure

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