Pound is plaything of British political chaos

The British pound is currently flying in all directions as British Prime Minister Theresa May's position falters. This after the sudden departure of 2 ministers.

The chaos in Britain is complete after the Foreign Secretary, Boris Johnson, on Monday 9 July his departure announced. A day that started with hope for both Prime Minister Theresa May and the British pound ended in great uncertainty.

On Monday morning, Brexit Secretary David Davis had already submitted his resignation. As a supporter of a hard Brexit, Davis did not agree with a proposal from May, whereby free movement of goods remains possible even after departure from the European Union (EU). In return, the country would have to follow EU trade rules.

Colony of Europe
That concession didn't just piss off Davis. In his letter of resignation, Johnson writes that the country is in danger of becoming a colony of Europe. In his view, the dream of a convincing Brexit, where the country can make a fresh start, is slowly dying due to unnecessary doubts. Due to the departure of 2 important ministers, May's position has again started to falter.

The uncertainty led to the british pound, after Johnson's unexpected departure, fell to its lowest level in 4 months. Initially, the currency rebounded as traders expect Davis's resignation to clear the way for May to speed up the Brexit negotiations.

Defending position
For now, Prime Minister May has her hands full defending her own position. She acted with lightning speed, appointing Dominic Raab as Davis' successor and putting Jeremy Hunt in Johnson's vacancy. Raab has campaigned for Brexit.

With the appointment, May indicates that she does not immediately choose a new course. With this she tries to prevent an uprising by her party members, who are in favor of a hard Brexit. For the time being, this has succeeded, given that there is no strong opponent and the prime minister has the support of a small majority within her party.

hot summer
Meanwhile, the pound has recovered somewhat as it becomes clear that May is in control and can present her Brexit plans to the EU. This means that the currency is back to the level it was before the weekend, after a considerable roller coaster ride. The significant exchange rate swings are a foretaste of what awaits the currency world in the coming months.

After Davis and Johnson leave, May loses control of her government. Both gentlemen can already spit their criticism without any restrictions on ministerial responsibility. Johnson in particular has flair and is popular. Holds May standing in this political hornet's nest, or is there mutiny lurking? The political chaos in Britain is far from over. The pound is heading for a hot summer.

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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