Will the Next UK Prime Minster be a Hardline Brexiteer or Pro Deal?
The UK is currently facing unprecedented levels of political uncertainty as the country braces for the election of a new Prime Minister less than six months before when the UK is expected to leave the EU.
Here we will be taking a look at the five leading candidates to replace Theresa May as PM and how Pound Sterling (GBP) exchange rates may react should each one be elected.
Boris Johnson is a committed Brexiteer and is the frontrunner in the leadership race having secured a significant majority backing of Conservative MPs.
While Johnson launched his campaign by stating he is ‘not aiming for a no-deal Brexit’ he has also said the UK must leave by 31 October ‘no matter what’.
We therefore expect that the election of Johnson would initially result in a modest drop in GBP, with his position as frontrunner meaning markets will have likely priced in a Johnson premiership.
Jeremy Hunt is one of the few Remain voting Tories currently in the race to replace Theresa May and is seen as the second favourite following the setback of Michael Gove’s campaign.
Hunt has pitched himself as the best negotiator to deliver Brexit, but while he has described a no-deal Brexit as ‘political suicide’ he has also said that he would pursue this option if there is no other way to leave the EU.
Despite this we still expect that the election of Hunt would prove positive for GBP exchange rates, in the short-term at least.
While Michael Gove’s campaign has lost momentum following his confession that he took cocaine as journalist, the environment secretary is still in with an outside chance of becoming the next PM.
Gove campaigned to leave the EU alongside Johnson in the 2016 referendum, but he is generally viewed as more moderate and pragmatic than the former foreign secretary, suggesting that he would be open to extending the Brexit deadline past 31 October.
With this in mind we are unlikely to see GBP exchange rates fall much further as a result of a Gove victory, with the Pound even potentially strengthening on hopes he will seek a deal with the EU.
Out of all the Tories in the running, the former Brexit secretary, Dominic Raab is viewed as the most hardline of all the Brexit supporting candidates.
Raab has said he would re-open negotiations with the EU on the withdrawal, but is clear that he would be open to leaving without a deal, having even indicated he would shut-down Parliament in order to push through a no-deal Brexit.
Because of this Raab is seen as very GBP negative, with the Pound likely to suffer a sharp sell-off should he be elected.
Sajid Javid is the other Remain voting candidate in with a chance of replacing Theresa May as PM, although he will have his work cut out for him if he is to make it to the final two.
Javid has said as PM he would focus on re-opening the withdrawal deal with the EU with a goal of changing the backstop agreement and has so far been evasive on whether he would be willing to lead the UK out of the EU without a deal.
This leads us to believe that a victory for Javid would likely be positive for Pound Sterling (GBP) exchange rates.
However as we have seen over the last six months, Brexit has a tendency of turn things on their head and we expect to see a few more twists in the saga yet, with many political observers betting that the UK will see a general election before the year is out.
In fact the only thing that looks certain this summer is that Pound Sterling (GBP) exchange rates are likely to be hit by rising volatility as we near the next Brexit deadline.