The City has reacted with cautious optimism over the new appointment of the Chancellor of the Exchequer.
After Sajid Javid quit after refusing to sack his special advisors and “and replace them with Number 10 special advisers to make it one team” the pound initially dropped.
Prior to Javid quitting a pound was worth $1.298, the pound fell within minutes after the news to $1.296 then rose to $1.304 a one week high when Rishi Sunak was appointed the chancellor.
Ranko Berich, Head of Market Analysis at Monex Europe said, “The pound’s positive reaction to Sajid Javid’s resignation does look a bit puzzling. The most plausible narrative to explain the rally in sterling is that markets are interpreting the news as a sign Boris has taken direct control of fiscal policy and that a Trumpian spending spree will ensue, raising prospects for growth and inflation in the short run.
“Rishi Sunak’s profile is in line with what you’d expect for a Chancellor, but his appointment is far less significant than the circumstances of Sajid Javid’s departure. Reports insisting that the former Chancellor’s advisers were all sacked and replaced with picks from Number 10 add to the drama.
“This suggests that Downing Street is looking to take far more control of fiscal policy and the most obvious reason for this move is to expand spending to boost the economy. At the margin, this is a positive development for sterling, given that a big whack of fiscal spending would indeed lift growth and lower the chances of a rate cut this year.
“March’s budget was already expected to feature significant spending commitments, but today’s events have raised expectations even further. Expect this to be a red-letter day for UK markets and sterling.”