British pound 'already at crisis levels' as transition of power gets under way

Sterling should make a small recovery as Parliament goes into recess but uncertainty looms over a Johnson premiership

LONDON, ENGLAND - JULY 24: Prime Minister Theresa May leaves 10 Downing Street for her final PMQ's on July 24, 2019 in London, England. Theresa May has been leader of the Conservative Party since 13th July 2016. Today she makes her final statement to the country as British Prime Minister. Boris Johnson, MP for Uxbridge and South Ruislip, was elected leader of the Conservative and Unionist Party yesterday receiving 66 percent of the votes cast by Conservative party members. He is due to take the office of Prime Minister this afternoon after Theresa May takes questions in the House of Commons for the last time. (Photo by Jeff J Mitchell/Getty Images)
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The pound remained sluggish on the morning of Britain’s transition of power as analysts gave a warning that sterling is "already at crisis levels, and will struggle to go much lower".

Boris Johnson became UK prime minister against a backdrop of plunging markets. The pound hit a two-year low on Tuesday after Mr Johnson's comments stoked market fears that the new leader could rush into a no-deal Brexit.

All eyes will be on successive speeches made by Mr Johnson that could, alongside stalled Brexit talks and a potential general election on the horizon, plunge sterling further, analysts warned.

However, parliament’s summer break until September provides some breathing room until that possibility.

"A no-deal Brexit is a risk and would certainly make new lows in GBP, but we do not expect the market to assign a higher hard Brexit premium than before until Parliament returns after the summer break in September," said Jordan Rochester, foreign exchange strategist at Nomura.

The pound-to-euro exchange rate recovered to 1.1160 with the confirmation of Mr Johnson’s appointment, having been as low as 1.1047 just last week.

Markets have known for weeks that Mr Johnson was the most likely to win the race to become the new prime minister ahead of his Conservative rival, Foreign Secretary Jeremy Hunt.

Mr Rochester added that traders will be looking at changes in Britain’s senior ministers as a Cabinet shuffle is expected under Mr Johnson.

"In addition to a new PM, the UK can also look forward to seeing replacements for Chancellor, Cabinet, Bank of England governor, budget and Brexit plan," he said.

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