Boris Johnson, Foreign Exchange Analyst

David Cameron's possible successor is watching the currency markets.

Seeking Brexit calm from Boris Johnson and MPC.

The mystery of how Boris Johnson spent the weekend has been solved. While his allies in the Brexit campaign were defending, if occasionally rolling back, their pre-referendum pledges in a series of TV interviews, the man seen as most likely to succeed David Cameron as leader of the Conservative Party remained conspicuously silent. 

The publication of Johnson's Telegraph editorial on Sunday night, entitled "I cannot stress too much that Britain is part of Europe — and always will be," delivered an answer: the London paper's former Brussels correspondent has been studying the currency markets. 

"The pound remains higher than it was in 2013 and 2014," the MP for Uxbridge and South Ruislip said in the article, as he made the case that risks associated with Brexit have been "wildly overdone."

Johnson did not clarify against which currency he was measuring, and as the pound weakened further in this morning's trading his assertion left many scratching their heads. The pound is much stronger, since 2013, against the Ukranian hryvnia, Kazahkstan's tenge, and Mozambique's metical — yet that may owe more to localized problems (war, devaluation, and a commodity rout) than reflect any kind of confidence in the U.K. economy.

Crucially, Johnson's assertion is also true against the dollar — but the dollars of Namibia, Jamaica, and Suriname rather than the usual yardstick (the world's most-traded currency), the dollar of the United States.

Against the U.S. currency, the sterling was, by 9:50 a.m. in London, at 1.3359, set for its lowest closing level in more than 30 years.

Against the euro, Britain's currency is indeed trading at a mere 13-month low — but since the euro registered a record drop in the wake of the referendum, plunged into uncertainty by the unprecedented departure of a EU member and dragged down by the pound itself, that comparison may not be the best indicator of investors' faith in the U.K.

That exchange rate matters because the EU is, at the moment, the U.K.'s biggest trading partner — in which respect, an even finer measure of the pound's value may be the Bank for International Settlements's trade-weighted index, according to GAM UK Ltd. fund manager Paul McNamara. It's also one that supports Johnson's point.

The only problem, McNamara points out, is that the chart above has yet to reflect any June data — which will inevitably show the pound to be much weaker. And the currency is not the only factor in flux. If the Leave camp's mantra of "taking back control" means turning away from Europe and increasing trade with the U.S., that'll alter the composition of the basket against which the pound is adjusted, dragging down sterling's effective level. 

"I don't think cable tells the whole story," said McNamara, referring to the most common measure of pound strength, the GBP/USD cross. "Still, the pound looks to us by far the most fragile major currency," he added.

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