Sterling slid on Monday after the resignation of the British foreign minister placed further pressure on Prime Minister Theresa May, but its losses were expected to be contained unless a full-blown leadership challenge materialised.
Johnson decided to walk just hours after May’s Brexit minister, David Davis, did the same over her EU plans – with May naming Brexit campaigner Dominic Raab as Davis’s replacement. The pound rose earlier in the European session as traders focussed on the increased likelihood of a “soft Brexit” in which the UK and EU retain close trade ties. But the second exit provoked a risk-off response in the market.
The plans focussed on May’s hard-fought blueprint for how Britain is to structure its relationship with the European Union after its leaves the bloc in March. That plan has been welcomed by markets, which believe it made the “soft Brexit” favoured by businesses and investors more likely.
Under May’s Brexit plan, Britain and the EU would retain close trade ties. But Davis said he believed this would hand too much power to Brussels in the exit talks. While Davis has said he would not seek to challenge May’s leadership, Johnson’s ambitions appear less clear.
The resignations have underlined May’s limited ability to impose cabinet discipline around a softer Brexit strategy. But analysts said May’s success in getting broad agreement for her plan for life after the EU was important, reflecting sterling’s relatively muted moves on Monday.
Under the agreement announced by May on Friday, Britain will retain a close trading relationship with the EU, making the sort of arrangement business leaders have called for in recent weeks more likely.
09:30 – GBP: UK GPD MoM (June) expected to be 0.3%
09:30 – GBP: UK Manufacturing Production MoM; Forecast at 1.0% against a previous of -1.4%