The pound rose against the euro today after Boris Johnson was announced as the new UK prime minister.
The pound traded at $1.2457 shortly around the time of the announcement, within striking distance of a 27-month low of $1.2382 reached last week.
But the former foreign secretary’s victory prompted a bounce in the pound against the euro, which was trading 0.2 per cent higher this afternoon at €1.1153.
The past three days of the pound against the euro are shown above. The bounce in the pound against the euro around the time of the Boris Johnson announcement can be seen to the right
The pound has now fallen for three days in a row against the dollar, to its level of £1:$1.245
Mr Johnson has declared that Britain will leave the EU on the latest October 31 Brexit deadline even if no transitional arrangements are in place.
Investors will be watching closely to see how many ministers unhappy with a government led by Mr Johnson will resign, as well as the make-up of his cabinet.
Mr Johnson’s belligerent tone has taken sterling 2 per cent lower against the dollar this month, and it has depreciated in 11 weeks out of the past 12.
Michael Brown, senior analyst at Caxton FX, said: ‘Unsurprisingly, Boris Johnson has this afternoon been announced as the new Conservative Party leader.
‘With such an outcome having been largely expected, sterling’s immediate reaction has been muted as the news was already priced in.
Boris Johnson leaves his campaign headquarters in London today for the announcement
‘However, focus will quickly switch to the next steps – namely, cabinet appointments and the Brexit plan. The latter will be of more importance for markets.’
A big sterling move after the announcement was deemed ‘unlikely’, with greater focus on Mr Johnson’s first speech in office and cabinet appointees.
Mizuho strategist Colin Asher said: ‘News of Johnson becoming the next prime minister is unlikely to move sterling.
‘Markets will be looking to see how much he is genuinely prepared for no-deal Brexit. He has said it’s ‘do or die’ but the question is, how reliable is that promise?’
‘We are in sort of a phoney war period, he can get on with Brexit preparations but the real action will happen when parliament reconvenes after the summer break.’
Foreign Secretary Jeremy Hunt arrives with wife Lucia for the announcement in London today
Meanwhile Oanda analyst Craig Erlam told AFP: ‘Sterling is trading in the red as we await the result of the Conservative leadership contest.
‘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.’
However, the weak pound handed a boost to the London stock market, because it makes exports cheaper for buyers using stronger currencies.
Earlier, IG analyst Joshua Mahony said: ‘Sterling declines are helping to drive the FTSE 100 higher… with markets gearing up for a likely Boris Johnson leadership.’