Pound's Brief Boris Bounce Shows Cabinet Spat May Work Both Ways

The pound briefly jumped on Tuesday after a report suggesting U.K. Foreign Secretary Boris Johnson could quit the government over its Brexit strategy, though rising cabinet tensions may work both ways for the currency.

It could be taken as a positive for sterling if Johnson were to step aside and allow Prime Minister Theresa May to steer a path toward a softer Brexit arrangement. If Johnson stays to win more influence and get his way, then it would at least ease the tension in government and could also be taken as a bonus for the U.K. currency.

But if the spat festers and leads to a Tory party leadership crisis or another election, it’s unlikely to end up being good for the pound. Still, there may not be much more downside for the currency at the moment, when the Bank of England is talking about raising rates.

The pound held above $1.35 on Tuesday after rallying nearly 3 percent last week as markets priced in two BOE rate hikes by November 2018.

— With assistance by Charlotte Ryan

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