Theresa May’s decision to step down as Prime Minister is hardly surprising, given her inability to get a Brexit deal through parliament as well as the speculated losses her party are thought to have incurred during the ongoing European Parliament elections.
Markets had already priced in the likelihood of a change at 10 Downing Street, which has contributed to the dismal performance of Sterling this week, earning the distinction of the worst performing G10 currency this month with suffered losses at 3%.
The growing uncertainty over who will next steer the Brexit process further complicates Sterling’s outlook. The October 31 deadline to leave the European Union is slowly approaching. There is speculation in the air over May potentially being succeeded by a Eurosceptic leader, which is seen raising the prospects of a no-deal Brexit. Something that would appear to be another warning light for Sterling.
Another key question to bear in mind is whether there will be enough time to prepare a suitable deal after the leadership contest concludes. The UK may be forced to ask for another extension from the European Union, a scenario such as this has the potential to face rejection given the constant back and forth around Brexit talks. Today’s development has certainly opened another can of worms and added to the chronic uncertainty over Brexit.
Although the Pound offered a mixed reaction after May announced her resignation date, investors should fasten their seat belts as the new round of drama ahead is just starting.