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British pound battered as Boris Johnson loses key ministers Rishi Sunak and Sajid Javid

The National logo The National 05/07/2022 Neil Murphy
The pound-dollar pair held a decline of 1.4 per cent right after the news, after earlier dropping as much as 1.8 per cent to 1.1899, the lowest since March 2020. Reuters © TOBY MELVILLE The pound-dollar pair held a decline of 1.4 per cent right after the news, after earlier dropping as much as 1.8 per cent to 1.1899, the lowest since March 2020. Reuters

The British pound held its decline versus the dollar after two members of Prime Minister Boris Johnson’s Cabinet announced their resignations, dealing the latest blow to the UK leader.

The pound-dollar pair held a decline of 1.4 per cent right after the news, after earlier dropping as much as 1.8 per cent to 1.1899, the lowest since March 2020.

“When your chancellor and health secretary both resign — it’s only a matter of time before a prime minister is out,” Jordan Rochester, a strategist at Nomura International Plc, wrote in a note on Tuesday and added that the Cabinet resignations are unlikely to affect the pound in the short term but the political instability may do so in the next few weeks.

The UK currency has been under pressure since late 2021 and is currently trading near the weakest level since the onset of the pandemic.

For Viraj Patel, macro strategist at Vanda Research, the loss of two key Cabinet members “prolongs UK political uncertainty and policy impasse”.

“[The pound] really isn’t a currency we would touch right now — neither from fundamental, policy and now political perspective,” said Mr Patel, who added he would place bullish bets on the euro and Swiss franc versus the pound.

The Bank of England said on Tuesday that the economic outlook for Britain and the world had darkened and told banks to ramp up capital buffers to ensure they could weather the storm.

It also said it would conduct an in-depth analysis to enhance surveillance of “opaque” commodity markets after Russia's invasion of Ukraine left the central bank without a full picture of risks and vulnerabilities.

“The pound is at clear risk of further losses given a weak economy and what we think are overextended [Bank of England] hike wagers,” said Shaun Osborne, chief FX strategist at Scotiabank.

The central bank, trying to tackle soaring inflation without hurting the economy, has raised rates five times since December. Some market players expect a bigger increase of 50 basis points at the next meeting on August 4.

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