British pound dips as traders predict Boris Johnson victory

The pound dipped toward recent lows Tuesday, with arch-Brexiteer Boris Johnson set to win the race to become Britain’s next prime minister.

Johnson, who has vowed to take Britain out of the European Union on the October 31 deadline with or without a deal, is widely forecast to beat rival Jeremy Hunt in the battle to become Conservative Party leader – and therefore prime minister. An announcement was due at about 10.45am GMT.

Ahead of the news, sterling dipped to $1.2427 on fears of a dreaded “no-deal” split that severs trade ties abruptly. That was not too far from last week’s two-year low of $1.2382.

The European single currency meanwhile rose to 90 pence. That compared with last week’s peak of 90.51, which had been the highest level since mid-January.

‘No photo finish’

“Sterling is trading in the red as we await the result of the Conservative leadership contest,” Oanda analyst Craig Erlam told AFP.

“Traders are clearly not expecting a photo finish in this particular race and despite the pound having been hit heavily in recent months at the prospect of a Johnson victory, they clearly see opportunity for a little bit more.

“We have not yet breached last week’s lows and this may well be the final push before some profit-taking kicks in.”

Former London mayor Johnson will immediately march into a head-on collision with the 27 EU leaders and his own parliament should he beat his underdog rival, Foreign Secretary Hunt.

The weak pound meanwhile handed a boost to the London stock market, because it makes exports cheaper for buyers using stronger currencies.

“Sterling declines are helping to drive the FTSE 100 higher … with markets gearing up for a likely Boris Johnson leadership,” added IG analyst Joshua Mahony.

“Declines for sterling come as no surprise, with traders reflecting their expectations of a government led by a prime minister who has laid out a clear pathway for leaving without a deal in October.”

Some analysts, however, are not entirely ruling out the prospect that Hunt could yet pull off a shock win.

“What would be far more interesting is if Hunt pulls off the latest and probably biggest shock and defies all odds to become prime minister,” noted Erlam,

“Given how he’s seen as a far more moderate reformed Brexiteer, this would likely signal a softer Brexit and much-reduced chance of no-deal.

“This may be a stretch too far, even if this, the age of political shocks,” he conceded.

Asian stocks climb

Elsewhere, Asian stock markets rose Tuesday, tracking gains on Wall Street with confidence given a boost by a positive earnings season and speculation top US and Chinese negotiators will hold face-to-face trade talks soon.

A bipartisan agreement to raise the US debt ceiling to fund the government for another two years – avoiding another painful shutdown – also provided some cheer.

The gains across the board come a week before the Federal Reserve holds its next policy meeting at which it is expected to cut interest rates, with a big question over how deep it will go.

Oil prices dipped up as traders keep tabs on the rumbling Iran crisis after it seized a UK-flagged tanker in the Gulf on Friday.

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