UK Chancellor Rishi Sunak resigned on Tuesday in a moment of high drama, saying he could no longer participate in a government that lacked public confidence. A series of ministers followed her example. So the political situation is, so to speak, fluid. But the pound shows little reaction. While sterling has weakened this week, the move preceded political news and was driven more by long-term factors. “Gone are the days when the sudden departure of a British chancellor and an open split with the prime minister was big news in the currency,” said Adam Cole, head of currency strategist at RBC Capital Markets. If you cast your mind back six years, in the wake of the UK’s vote to leave the EU, sterling has responded to almost every political twist and turn, earning at one stage the nickname of HM Government’s unofficial opposition. The currency showed that investors simply didn’t like Brexit, and the harder it looked to break with the EU, the more it fell. In 2022, heaven knows sterling has its problems. The dollar, always favorable in times of stress, is tearing higher as US interest rates rise to tackle rising inflation, pushing the pound below $1.20 – space it has rarely occupied in the past 20 years. But the Bank of England has already raised interest rates several times and the pound has not risen. Something else is clearly going on. True Brexiteers hate to hear it, but the economic impact of our messy divorce from the EU is hurting, and the UK opting into the Northern Ireland protocol isn’t helping. Some investors believe there could be a bigger drop for this reason. Meanwhile, the short-term political drama leaves little sign. That’s because markets, as a reflection of the wisdom of crowds, are a simple beast. They like nice clean stories. Boris Johnson himself has shown an ability to move the pound in the past. His pro-Brexit statement in February 2016, when he was the popular mayor of London, sent the currency down 2%. Here, the story is not so clear. Cole at RBC pointed out that the markets have already “written off Johnson as prime minister”. The bookmakers’ odds suggest the Prime Minister is not expected to last the year. In addition, “there is no clear candidate to replace Johnson, so it is difficult to get a view of what his departure would mean for politics.” Zahawi may end up using lower taxes to bolster a populist agenda, perhaps. That in turn could mean the Bank of England is more aggressive in raising interest rates, he said. On paper that is positive for sterling. However, rate hikes so far have done little, if anything, to support the pound, so there are plenty of “maybes” to feed into a trade of belief.

“The new chancellor is not going to be able to fundamentally change the course of the UK economy. This probably explains why sterling and other UK assets barely moved on the news of these resignations and appointments,” said Paul O’Connor, head of UK-based multi-asset group at Janus Henderson . “The best he can hope for is to help steady the ship until the global economic storm passes. Some targeted fiscal measures seem more likely than an attempt to introduce a transformative new policy regime.” Any speculators looking for more substantial potential policy changes to sink their teeth into may have to wait for a Scottish independence referendum or other general election. Others expect a kick from the seemingly obvious withdrawal. “I look forward to the 1 per cent recovery in sterling when he [Johnson] it eventually drags out,” as one hedge fund manager observed. [email protected]