Laurens Maartens, NBWM:

“Pound is a plaything of British political chaos”

The British pound is going every which way because Prime Minister Theresa May’s position is unsteady after the sudden departure of two MPs. The political chaos in the UK was completed after Boris Johnson of Foreign Affairs announced his resignation on Monday. A day that started hopeful for both May and the British pound, ended in much uncertainty because of this. On Monday morning, Brexit minister David Davis had already resigned. As a proponent of a hard Brexit, Davis couldn’t agree on one of May’s proposals that would allow free movement of goods after leaving the EU. In exchange, the country would have to continue to follow the EU’s trade regulations.



Colony of Europe
Davis wasn’t the only one to disagree with this concession. In his letter of resignation, Johnson writes the country is in danger of turning into a colony of Europe. In his opinion, the dream of a convincing Brexit that would allow the country a fresh start is slowly dying as a result of unnecessary doubts. Because the two most important ministers left, May’s position has become unsteady. Uncertainty led the pound to drop to its lowest level in four months after the sudden resignation of Johnson. The currency had actually recovered before that, because traders expected Davis’ leaving would clear the way for May to make haste with Brexit negotiations.

Defending position
For now, May has got her hands full defending her own position. She worked incredibly quickly appointing Dominic Raab as Davis’ successor, and by putting Jeremy Hunt in Johnson’s old position. Raab has made out a case for Brexit. His appointment shows May hasn’t immediately chosen a different direction. This way, she’s trying to prevent rebellion among her party members in favour of a hard Brexit. Thus far, she’s been successful, considering the lack of a strong opponent, and because the PM needs the support of the small majority within her own party.

Hot summer
The pound has recovered somewhat now that it’s becoming clear May is still in control, and that she can propose her Brexit plans to the EU. After quite the rollercoaster ride, the pound is now back at its level from before the weekend. The considerable exchange rate fluctuations are a taste for what’s to come in the world of currencies in coming months. After David Davis’ and Boris Johnson’s resignations, May is perceptibly losing control of her government. Both gentlemen can now voice all of their criticisms without restrictions of ministerial responsibility. Johnson in particular has a lot of flair, and he enjoys great popularity. Will May stay standing in this political hornet’s nest, or is mutiny around the corner? The political chaos in the UK is far from over. The pound is heading for a hot summer.

Laurens Maartens (laurens.maartens@nbwm.nl) is a currency expert with the Dutch Payment and Exchange Company (www.nbwm.nl). He started his career with Swiss bank UBS in 1998. He has been employed by several parties, both nationally and internationally, since then. He provides commentary for current currency developments in newspapers, on websites and on the radio. In addition, he gives lectures and trains entrepreneurs in the field of currency management. He urges participants to choose especially simple and inexpensive currency products. This column reflects his personal opinion. This information is not intended to constitute professional investment advice nor is it meant as a recommendation to make certain investments through the Dutch Payment and Exchange Company plc.

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