NEW YORK: The pound fell against the dollar but rose against the euro Tuesday after arch-Brexiteer Boris Johnson was announced as Britain’s next prime minister.
The selection of Johnson came on a positive day for global stocks, due in part to hopes for progress on US-China trade talks, as well as a deluge of mostly solid US earnings.
Johnson, who has vowed to take Britain out of the European Union on the October 31 deadline with or without a deal, defeated Jeremy Hunt in the race to become Conservative Party leader.
Investors had expected the result, limiting the impact on stocks, but the pound still spiked on the news. However, it did not hold its gains against the US currency.
“Given that he’s been the frontrunner for quite some time the immediate market reaction has been fairly quiet with the pound remaining under pressure and not far from its lowest level since April 2017 against the US dollar,” noted David Cheetham, chief market analyst at XTB online brokerage.
“The fate of the new PM’s tenure and of the pound for the coming months will be almost solely determined by Brexit developments,” he added.
Johnson appears to be on a collision course with the 27 European Union leaders over Brexit.
Incoming European Commission President Ursula von der Leyen noted that “there are many different and difficult issues to tackle together. We have challenging times ahead of us.”
Analyst Craig Erlam at currency trading brokerage OANDA said, “The question now is whether the pound can recover from its slump in the near-term or whether the risk of no-deal is just too great and every passing week is seen to take us one week closer to the cliff-edge.”
The shakeup in Britain comes as central banks are shifting to a more dovish posture, with the US Federal Reserve expected to cut interest rates on July 31.
The pound’s advance against the euro came ahead of Thursday’s European Central Bank meeting. Analysts think the ECB will probably signal an interest rate cut in September, but could take action as soon as this week.
– Earnings lift Wall Street –
Asian markets closed higher, in part owing to speculation that top US and Chinese negotiators will hold face-to-face trade talks soon.
Reports the two sides agreed to meet next week in China gave a lift to Wall Street, along with a batch of mostly good corporate earnings.
Companies seeing big gains after reporting quarterly results included soda giant Coca-Cola, toymaker Hasbro, industrial and aerospace giant United Technologies, paint company Sherwin-Williams, motorcycle maker Harley-Davidson, JetBlue Airways and biotech firm Biogen.
There were some exceptions, with insurer Travelers and appliance maker Whirlpool falling after their earnings were released. But the overall performance reassured investors who had been worried about a possible earnings “recession.”
The latest barrage of earnings released Tuesday bolstered confidence that “the economy is not as weak as some had estimated,” said Karl Haeling of LBBW. “We have enough of a sample size of corporate reports.”
– Key figures around 2050 GMT –
Pound/dollar: DOWN at $1.2437 from $1.2476 at 2100 GMT
Euro/pound: DOWN at 89.62 pence from 89.85 pence
Euro/dollar: DOWN at $1.1148 from $1.1209
Dollar/yen: UP at 108.22 yen from 107.87 yen
New York – Dow: UP 0.7 percent at 27,349.19 (close)
New York – S&P 500: UP 0.7 percent at 3,005.47 (close)
New York – Nasdaq: UP 0.6 percent at 8,251.40 (close)
London – FTSE 100: UP 0.6 percent at 7,556.86 (close)
Frankfurt – DAX 30: UP 1.6 percent at 12,490.74 (close)
Paris – CAC 40: UP 0.9 percent at 5,618.16 (close)
EURO STOXX 50: UP 1.2 percent at 3,532.87 (close)
Tokyo – Nikkei 225: UP 1.0 percent at 21,620.88 (close)
Hong Kong – Hang Seng: UP 0.3 percent at 28,466.48 (close)
Shanghai – Composite: UP 0.5 percent at 2,899.94 (close)
Brent North Sea crude: UP 0.9 percent at $63.83 per barrel
West Texas Intermediate: UP 1.0 percent at $56.77 per barrel