Sterling sheds gains as Boris Johnson resigns over Brexit deal

Sterling tumbled on Monday as the resignations of British foreign secretary Boris Johnson and Brexit secretary David Davis raised questions over Theresa May's future as prime minister and sent investors scrambling into less risky assets.

Sterling was up as much as 0.5 per cent against the US dollar and by 0.3 per cent against the euro in early-morning trading, with Mr Davis’s original departure having been viewed as increasing the chances of a so-called “soft Brexit”.

But the foreign secretary’s resignation in the afternoon reversed the dynamic, sending the pound down nearly 0.3 per cent against the euro and 0.4 per cent against the dollar. By early evening it was trading at just over 88 pence against the euro.

The departure of Mr Johnson plunges Ms May into a fresh leadership crisis. “With that being two cabinet resignations in less than 24 hours, the pound began to fret about the chances of a formal challenge to Theresa May’s leadership from inside the Tory party, and the subsequent potential for another general election,” said Connor Campbell, financial analyst at SpreadEx.

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“To be fair to sterling, however, it avoided falling off a cliff like it might well have done, instead producing a more measured reaction to the day’s twists and turns,” he added.

David Madden, a market analyst at CMC Markets UK, said: “The FTSE 100 has been helped by Boris Johnson’s resignation as foreign secretary, as the drop in the pound lifted the British equity benchmark. “The departure of Mr Johnson from the cabinet is a major blow to Theresa May’s leadership, and it could call her future into question.”

The resignations of the two cabinet “big beasts” come just days after Ms May secured senior ministers’ agreement at Chequers for a Brexit plan about which both men had expressed reservations. Mr Madden said any signs of a leadership contest among the Tories could further weigh on the pound. – Additional reporting: Reuters