GBP slides more than 200 pips as Boris Johnson exits UK Prime Minister race

The Brexit surprises are still coming. And there are likely more in store in the days and weeks ahead.

Since the initial drop of the GBPUSD last Friday from the high 1.40’s to about 1.32 right after word of the Leave side referendum victory broke, the GBP has been slowly recovering – as have the overall capital markets. This morning the Cable trade crossed the 1.35 psychological barrier for the first time since the referendum.

But that all changed very quickly early Thursday afternoon. For the second time in a week the UK’s bookies got it wrong with Brexit when their odds-on choice (at roughly even odds) to become the next British Prime Minister decided that he won’t even make it to the voting stage.

That’s right, popular ex-London Mayor and #VoteLeave leader Boris Johnson has decided to withdraw from the Conservative Party race to replace David Cameron as PM. That quickly also removed Mr. Johnson from the list of winners from the Brexit vote.

The currency markets seemed as shocked as the political sphere by Mr. Johnson’s surprise move. The GBPUSD dropped fairly quickly more than 200 pips, from hovering around the 1.35 range to retesting its post Brexit lows in the 1.32 range. (As at the time of writing the Cable was at about 1.3268).

Why did Johnson withdraw?

And why did the currency markets take that as such a negative signal?

Martin O’Rourke, Managing Editor at Saxo Bank’s explains. More of Martin’s analysis can be seen at


Saxo on Brexit: Betrayed Boris washes his hands of mess

  • Brexit vote was the catalyst for UK prime minister David Cameron’s resignation
  • Boris Johnson decides not to throw name into ring despite huge popular support
  • GBPUSD slides 80 pips to 1.3415 area in aftermath
  • Brexit coalition comes apart as erstwhile partner Michael Gove betrays Johnson
  • Johnson walking away from a mess largely of his own creation
  • Most likely result looks to be for remain-campaigner Theresa May to win
Martin O'Rourke, Saxo Bank

Martin O’Rourke, Saxo Bank

Well, well, well. A week can be a long time in politics and so too can be just 72 hours.

On Monday, we speculated on the likelihood that Boris Johnson would have nothing more than a formidable but beatable Theresa May to overcome in the race to succeed Conservative Party leader and UK prime minister David Cameron in time for the first leaves of Autumn.

Fast forward three days and Boris Johnson shook the foundations of the whole Brexit coalition by refusing to put his name forward as part of the nominations for the next leader of the Conservative Party and next prime minister of the UK when David Cameron moves on at some point in the next three months.

Johnson told an aghast media this lunchtime that as far as the leadership contest was concerned, “having consulted colleagues and in view of circumstances in Parliament, I have concluded that person cannot be me”.

Why the astonishing turnaround? First and foremost, the Brexit coalition was never going to last.
It was always an uneasy marriage of committed Brexiteers led by Nigel Farage and his UKIP party and more, let’s say, pragmatic campaigners of Johnson’s ilk for leaving the European Union.

But Johnson was probably expecting the first split to come between his side of the Brexit line and the zealots lead by Farage rather than with Michael Gove, the justice secretary who had aligned himself with Johnson through the campaign.

But in a deft coup d’état, Gove toppled Johnson’s own campaign in one fell swoop this morning when he not only declined to back the former London mayor but then drove the knife that bit further into the back of Johnson by declaring he “cannot provide the leadership or build the team for the task ahead”.

Johnson will no doubt feel utterly betrayed by Gove, but at the same time somewhat relieved that he has been handed a get-out-of-jail-free card by effectively having his free run scuppered at the first hurdle.

We speculated Monday that Johnson got a result that he did not particularly desire premised on the notion that he had only hoped to wound rivals Cameron and UK chancellor George Osborne through the Brexit campaign leaving the stage nicely arranged for an accession to the throne at a time more suited to his timetable.

But the campaign overshot itself, swept the Brexiteers to victory and landed Johnson with the highly unappetising dilemma of having to invoke article 50 of the Lisbon Treaty and go down as the man who took the UK out of the EU. We argued strongly that this was a plate Johnson did not want to step up to and the betrayal by Gove may have afforded him the opportunity to stay out of the race with the minimum of egg on his face.

It will still be a significant amount of egg nevertheless, but not quite perhaps the baker’s dozen if Johnson had found himself in the position of having to force through article 50 and then dealing with the consequences down the line.

GBPUSD took a tumble in the immediate aftermath of the decision to fall some 50 pips and is still more than 10% shy of the 1.50 high from the evening of June 23 when initial polls put the ‘Remain’ camp ahead.

GBPUSD plunged 50 pips to the 1.340 area in the aftermath of Johnson’s shock decision and then went further to the 1.315 zone.

GBPUSD after Boris Johnson withdrawal

But what will the ordinary Joe on the street think now that Johnson has turned his back on the leadership race and left the field seemingly open to May, who was very much part of the ‘Remain’ campaign?

Judging by the reaction to the initial piece on Johnson Monday, it won’t be favourable. The Eton alumnus was very much the champion of the Brexit movement and no doubt helped swing the vote from a loss to a victory.

Johnson may protest that without Gove’s support — the dream ticket for his run at the leadership  — he simply did not have a chance of winning. That may well be true with support for the ex-mayor somewhat lukewarm among the foot soldiers of the party membership and many of his colleagues not overly fond of Johnson’s celebrity-seeking persona.

But, and this is now the really big but, he has gambled his political career on the assumption that the popular support that swelled behind him during the Brexit campaign will not dissipate in anger at his refusal to take on the establishment (yes, the irony is intended).

Johnson will now be left to lick his wounds. No doubt, he will soon enough return to sniping from the sidelines when the moment is opportune. But we questioned Monday whether he could step beyond gimmicks and show real leadership and it seems he could not.

We can’t help feeling he’d have been far better off staking it all on the battle field and, if not actually winning, putting up such a good show that his cohorts on the rugby fields of Jerusalem (or indeed Eton) would have been with him all the way and he could, most importantly, have held on to that popular support that swelled the Brexit vote. In other words, he could have lived to fight another day.

Instead, he’s exited left, pulled the rug from underneath the Brexiteers and left behind a mess that he played a huge part in engineering.

It will be left for others — May most likely — to clean the mess and handle what will be an extremely difficult process for the UK once article 50 is invoked.

Cameron meanwhile must be enjoying the moment. He knew exactly what he was doing when he resigned and will no doubt be loving the schaudenfraude. Maybe Johnson will join him for that glass of wine as they watch the Brexit denouement from the sidelines.

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