Sterling rallied against the dollar on Monday after Boris Johnson pulled up out of leadership contest leaving many of his supports humiliated.
MPs such as Nadhim Zahawi and Chris Cleverly were backing Johnson to be PM yesterday morning and quickly shifted their support to Rishi Sunank shortly after Johnson announced his decision to pull out of the race. Rishi is now favourite to win the leadership contest having publicly secured the backing of 155 MPs ahead of today’s 2pm deadline.
It is hard to imagine many of Johnson supporters will secure ministerial roles in a Sunak government, a positive for markets that sent the pound soaring on Monday.
Many had seen Johnson supporters that quickly got behind Truss as weak with Conservative MP Charles Walker describing the cohort ‘untalented’.
The prospect of Rishi Sunak now leading the Conservative party and consigning Truss and Johnson supporters to the backbenches saw GBP/USD rise 0.3% to 1.1334 in early trade on Monday.
This morning’s move suggests ensuring anyone politically connected to Truss or Boris Johnson is far away from frontline politics will help support sentiment around UK assets.
‘’The cult of Boris which was hanging over the Conservatives like a charm of enchantment has for now been broken, sending the pound higher, after the former Prime Minister said he would not stand again. Westminster is rife with speculation that he had not garnered enough support from MPs, despite his protestation of the contrary,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“He had threatened to cause fresh political instability, given that it’s less than two months since he left the job, so his retreat from the race brought a sigh of relief for sterling and an even bigger sigh of relief on the bond markets. The pound is up by more than 0.6% to $1.136 with former Chancellor Rishi Sunak now favourite to take the top job.”