The Pound Gains After Javid Departure

The pound saw a rise on Thursday (13th) afternoon when news broke that Sajid Javid was resigning from his position of UK Chancellor, to be replaced by Rishi Sunak, ahead of the first budget of the Boris Johnson government next month.

Javid Departure

Johnson took on the task of reshuffling his cabinet on Thursday, with Javid expected to continue in his role of chancellor, despite being requested by the prime minister to fire his team of aides.

Javid then shocked everyone by announcing midway through the changes that he was resigning from the government, stressing that he could not bring himself to fire his advisers, who had worked incredibly hard.

This comes days after rumours of a rift between him and Dominic Cummings, the senior adviser to Boris Johnson. Javid, who was due to give his first budget in four weeks, was immediately replaced by Sunak, who previously filled the position of Chief Secretary to the Treasury.

Effect

The news had an immediate effect on the value of the pound on Thursday, with the currency rising some 0.7% in the middle of the afternoon, coming in at $1.3045 against the dollar, its highest total for a week.

Although there is a shadow hanging over the Treasury that Mr Cummings is seeking complete control of it, investors appear to be gambling that Sunak will deliver a big spending boost when he addresses the nation for his budget next month.

Change

Only in December ahead of the election had Javid persuaded Johnson to commit to balance the day-to-day budget for a three year period, which would almost cap any spending, however that could be about to disappear.

Sunak, a known close ally of the prime minister could deliver a huge financial stimulus, which would be in stark contrast to what was previously agreed. This would boost growth in the short term, which in turn would severely reduce the chances of the Bank of England reducing interest rates.

Summary

Although Johnson committed to Javid being his chancellor recently, it would appear he has chosen his power over his personnel in a bold move. The short term effect has been a positive one for the pound though ahead of the eagerly anticipated budget next month.