The British Pound and government bond prices remained under pressure on Monday following Prime Minister Keir Starmer’s resignation, which could open the door for rival Andy Burnham to become the country’s seventh leader in a decade.
Sterling was down 0.27% at $1.3202 at the time of writing, largely unchanged from earlier levels, while holding steady against the Euro at 0.867.
Benchmark 10-year UK gilt prices were also little changed, with yields edging up 1 basis point to 4.85%, predominantly in line with levels seen before the announcement, Reuters reports.
UK equity markets remained broadly stable after the announcement, with the blue-chip FTSE 100 edging slightly lower on the day, while mid-cap stocks fell 0.5%.
Pressure had been mounting on Starmer for months, as his popularity weakened amid criticism of his handling of the economy.
Attention is now expected to shift to Andy Burnham’s choice for Chancellor to replace Rachel Reeves, who has worked to maintain bond market confidence in the UK’s fiscal discipline.
Burnham is seen as more left-leaning than Starmer, and while he has pledged to maintain Reeves’ strict fiscal rules, investors are likely to demand evidence that this commitment will be upheld.
On the business side, analysts say a change in leadership could lead to higher taxes on banks as a way to help plug Britain’s fiscal gap, particularly at a time when lenders are posting strong earnings.
Elsewhere, the Japanese Yen traded around 161.74 per Dollar on Monday, hovering just above a two-year low reached last week. A move beyond 161.96 would push the currency to its weakest level since 1986.
Japanese Finance Minister Satsuki Katayama said authorities stand ready to take appropriate action at any time in response to excessive currency movements.
The Yen has erased the gains made after intervention measures on 30th April, as a shift in the Federal Reserve’s policy outlook prompted traders to increase bets on further rate hikes this year, strengthening demand for the US Dollar.
Furthermore, the Dollar index, which measures the US currency against a basket of six major peers, held just below 101 and remained near a one-year high. It has gained almost 3% so far this year, supported by expectations that interest rates will stay elevated for longer than previously anticipated.