The pound bounced on Boris Johnson’s first day in the job as the new prime minister was optimistic over striking a Brexit deal in the next 99 days.
After being asked by the Queen to form a Government, Johnson delivered his first speech as prime minister on Wednesday and promised Britain would leave the EU on October 31 “no ifs and no buts.”
Sterling GBPUSD, +0.4582% improved on earlier gains to climb 0.5% to $1.249 as Johnson was confident of a “new and better” deal, relegating a no-deal Brexit to just a “remote possibility.”
Markets had priced in a Johnson victory and his appointment has brought much needed stability to sterling, which has fallen in recent days over mounting fears of a no-deal scenario.
However, with Johnson set to announce his cabinet later on Wednesday, the pound could yet weaken if hard-line Brexiters are give key jobs.
The former mayor of London’s tenure has already had an impact on markets but with so much on his plate, here’s what to expect over the next 100 days.
Stocks that could rise in the long run? A declining pound has boosted the internationally exposed FTSE 100 UKX, -0.73% in recent weeks, a trend that could continue if Johnson ramps up the no-deal rhetoric.
Investors, however, would have marginally preferred to see Jeremy Hunt take up residence in No. 10, according to research by broker the Share Centre. Speaking to MarketWatch, Share Centre’s chief executive, Richard Stone, said that while the pound and domestic stocks would come under pressure in the short term, a Johnson reign could end up being brighter in the long run.
He said: “Both candidates have indicated they will look to loosen fiscal policy slightly and increase public spending, based on the various commitments they have made.
“This should, in the longer run, be good for corporates and their earnings and thus for share prices — assuming the near-term crisis of Brexit is navigated sufficiently well to enable them to implement those longer-term economic plans.”
Johnson’s stance on rising tensions with Iran in the Middle East could also have an impact, with potential action boosting crude prices and favoring the FTSE 100’s oil majors.
Trade: Will Trump see eye-to-eye with new prime minister? Johnson, born in the U.S. to British parents, was reluctant to criticize U.S. President Donald Trump throughout the leadership contest.
The former mayor of London has made negotiating a trade deal with the U.S. a priority and could even travel across the pond in one of his first major acts in charge.
U.K. Trade Secretary Liam Fox claimed striking such a deal before leaving the EU on Oct. 31 would be in breach of European law, but that is unlikely to dampen Johnson’s enthusiasm to get a deal done.
The pound: What happens next? The pound GBPUSD, +0.4582% has endured a bad run of late as the Conservative leadership candidates have ramped up the Brexit rhetoric and heightened the prospect of a no-deal scenario.
A Johnson coronation was priced in and the currency has initially rallied as stability returns.
But the makeup of his cabinet could still move the pound.
ING global head of FX strategy Chris Turner said a raft of resignations in the immediate aftermath of a Johnson victory would open the door for more hard-line Brexiteers to take up cabinet posts, further weakening the pound.
J.P. Morgan economists said a further Brexit delay — either through an early election or a second referendum — was currently the most likely outcome.
Global FX strategy head Paul Meggyesi said a Tory majority and hard-Brexit mandate following a snap election GBPUSD, +0.4582% would lead sterling to $1.20, while a Labour coalition and soft Brexit would see it hit $1.30. A second referendum and subsequent decision to remain in the EU would see sterling bounce to $1.40.
J.P. Morgan economists added that a no-deal Brexit, a 25% probability, would see sterling sink to $1.15 or even lower.
New chancellor — emergency no-deal Brexit? Philip Hammond resigned as chancellor on Wednesday as he could not support keeping a no-deal Brexit on the table. Hammond said the new chancellor must be “closely aligned” with the new prime minister on Brexit.
Johnson was likely to sack “Fiscal Phil” anyway, and Liz Truss and Sajid Javid have been touted as early contenders for the chancellor role.
An emergency budget in September ahead of a potential no-deal Brexit could be in the offing and was heavily hinted at by Johnson in his speech outside 10 Downing Street.
Institute for Fiscal Studies director Paul Johnston said the new chancellor should be warned against such a budget as big economic decisions would be “dangerous” given the uncertainty around Brexit.
He added that Hammond’s successor would be urged to avoid a no-deal outcome.
Bank of England choice? The new prime minister will work with current Bank of England Gov. Mark Carney until Carney’s tenure comes to an end in January 2020.
The Canadian clashed with Johnson over whether the U.K. would automatically be hit by tariffs on exports to the EU in a no-deal Brexit, with Johnson claiming they could be avoided.
In the meantime the new leader will be tasked with selecting Carney’s successor as soon as autumn.
Financial Conduct Authority CEO Andrew Bailey has long been the favorite for the role, but Johnson’s former economic adviser, Gerard Lyons, has emerged as the new front runner.
Lyons, a prominent Brexit supporter, has been interviewed for the role and in an opinion piece for the Financial Times urged the government to review its 2% inflation target.