Boris Johnson is facing pressure from his own party and opposition parties to step down from the position of Prime Minister (PM) of Britain.
Pound sterling continued its rally against various other major currencies in trading this Thursday (13/January) despite the new political scandal involving British PM Boris Johnson. The depreciation of the US dollar provides an opportunity for GBP/USD to return to reach the 1.3740 level (highest since late October), while EUR/GBP continues to be under pressure near a two-year record low.
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| GBP/USD Daily Chart via TradingView |
As predicted by analysts last year, PM Boris Johnson's leadership faces new challenges this year. On Monday, news emerged that his secretary had sent out invitations to more than 100 No. Downing Street staff. 10 to attend a "drinking party" on May 20, 2020. The email listed "bring your own liquor" and "enjoying the nice weather". In fact, that time coincided with the imposition of the first strict lockdown in the UK and the government forbade people from gathering more than 2 people.
Johnson initially declined to comment on the email. However, yesterday he was forced to admit before the British Parliament that he knew and had attended the drinking party because he thought it was a "work event". Consequently, there were pressures from his own party and the opposition parties to resign.
On Wednesday, a London court also handed down an "unlawful" verdict for awarding a government PPE contract to a political connection in 2020. The GBP500 million contract was allegedly awarded to PestFix firm and hedge fund Ayanda Capital without proper procedures.
Despite these tempests, the pound sterling's bullish momentum continues. A number of analysts assess the chances of Johnson's resignation is quite minimal as long as he insists on refusing to resign. While others think the market might even be more welcoming of people who have the potential to replace Johnson from the Conservative party.
“Sterling is ignoring political risks by sliding to fresh two-month highs against the USD,” said Joe Manimbo, senior analyst at Western Union Business Solutions, “The pound's strength is a signal that the market is currently assessing the risk as low for Johnson to step down as a result of this controversy. "
Jeremy Stretch, strategist at CIBC Capital Markets, agrees. He said, "While UK PM Johnson's political future looks increasingly muddled, Sterling remains at the top of the G10 performance leaderboard one month. With the UK election not expected until 2024, the underlying political risks need not be overstated."
Please note that the UK has a parliamentary system of government. The public elects members of parliament in elections, then members of parliament elect the Prime Minister. Given that the Conservatives have won the last election, they still have the power to choose a replacement Prime Minister in case Boris Johnson loses support. A change of British Prime Minister does not require another election, as happened when Johnson replaced Theresa May in 2019.
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