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Sterling sees small lift as Johnson resigns as prime minister - REUTERS

JULY 07, 2022

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  • Johnson says he will step down as PM
  • Sterling holds earlier gains, up 0.4% vs dlr and euro
  • Markets had priced in his departure already
  • Economic drivers far more important for pound

LONDON, July 7 (Reuters) - Sterling held on to modest gains on Thursday after Boris Johnson said he was quitting as prime minister following a mass of ministerial resignations and calls for him to go. read more

The gains versus the dollar and the euro began after media reports of his resignation earlier in the day. But the moves were small, with Johnson's departure already seen as almost a certainty and largely priced in by markets.

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UK assets have been notably calm as a collapse in support engulfed Johnson this week, with the deteriorating global economic backdrop viewed as far more important even if some immediate political uncertainty has been removed.

Against the dollar, the pound was last at $1.1964, up around 0.4% on the day but below the high of $1.2024 hit before Johnson announced he was quitting.

The pound had hit a March 2020 low of $1.1877 on Wednesday.

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Versus the euro, sterling climbed to 84.94 pence, a four-week high , shortly before Johnson spoke.

"Some of the sentiment we've seen in markets today is relief that some of the scandals of the past year will be behind us," said Stefan Koopman, senior macro strategist at Rabobank.

"But this is mostly on hope because if you look forward it is unclear who will replace him (Johnson)."

The British currency had been floored to two-year lows versus the dollar below $1.19 this week, although analysts say concerns about the health of economies including Britain's have been a far bigger cause of the selling than the political drama in Westminster.

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"Sterling remains vulnerable. The growth outlook is not good and the Bank of England is constrained. I expect a recession in the next few quarters," Koopman said.

Against the euro, the pound has held up far better. Europe's single currency has borne the brunt of investor concerns about the risk of recession and the economic fallout from soaring natural gas prices.

"If you look at where the value of the pound at these cheaper levels, we would expect it to go higher from here," said Gerard Fitzpatrick, global head of fixed income at Russell Investments, citing reduced political uncertainty.

Some analysts reckon Johnson's departure could lead to increased public spending as a new leader and team try to shore up support with populist measures.

That may provide a short-term boost to UK assets but could raise inflationary pressures, with Britain's economy feeling the pressure of decades-high inflation more than many other countries. read more

UK stocks (.FTSE), (.FTMC) were higher on the day, broadly in line with gains internationally. British government bond yields rose , along with rises in the euro zone.


Reporting by Tommy Reggiori Wilkes and Dhara Ranasinghe; Editing by Saikat Chatterjee and Mark Heinrich

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