The pound sterling continued its rally against a wide array of other major currencies in Thursday trading despite a new political scandal involving the British Prime Minister Boris Johnson.
The depreciation of the US dollar provides an opportunity for the GBP/USD to again reach the level of 1.3740. That position is the highest one since the end of October.
Mean while, the EUR/GBP pair declines near it’s two-year low position. As per analysts' forecasts last year, the prime minister Boris Johnson's leadership faces a new challenge this year.
On Monday, the news emerged that his secretary had extended an invitation to more than 100 No 10 Downing Street staff to attend a "drinking party" on 20 May 2020.
The email listed the members to bring their own alcohol and to enjoy the wonderful weather”. In fact, it coincided with the enactment of the first strict lockdown period in the UK.
Furthermore, the government prohibited citizens from getting together more than 2 people. That was done to stop the spread chain of the coronavirus.
Johnson's Confession about the Email Invitations
Johnson initially declined to comment on the email. However, he was yesterday forced to admit before the British Parliament about that email invitations.
He confessed that he knew and had attended the drinking party because he thought it was a "work event". Consequently, there was an insistence from his own party and the opposition.
They forced him to resign from his current position. On Wednesday, a London court also handed down an "unlawful" verdict for its act of awarding a government APD contract to his political connections in 2020.
The GBP500 million contract was allegedly awarded to PestFix company and hedge fund Ayanda Capital. Unfortunately, everything was done without going through proper procedures.
Pound Bullish Momentum is Continued
Despite the mixed tempests, the bullish momentum of the pound sterling continues. Some analysts consider the chances of Johnson's resignation is quite minimal.
That is as long as he insists on refusing to resign. While some think that the market is likely to be more welcoming to people who could potentially replace Johnson from the Conservative party.
Sterling shrugged off the political risks by sliding to a new two-month high against the DOLLAR. It was said by Joe Manimbo, a senior analyst at Western Union Business Solutions.
The toughness of the pound is a signal that the market is currently assessing the risks are low for Johnson to resign due to this controversy. That is the possibility.
Sterling has a G-10 Performance for a Month
Jeremy Stretch, a strategist at CIBC Capital Markets, agrees. He said that Although the British PM Johnson's political future appears increasingly complicated, Sterling remains at the top.
That is especially of the G10 performance leaderboard for one month. With the UK election not expected to take place until 2024, the underlying political risks need not be overstated.
Please note that the UK adheres to a parliamentary system of government. The public elects MPs in elections, then MPs elect the Prime Minister.
Given that the Conservatives have won the last election, they still hold the power to choose a replacement Prime Minister should Boris Johnson lose support.
Another Election isn’t Necessary to Replace Boris
The change of British Prime Minister does not require another election based on the rules and policies. That as it did when Johnson succeeded Theresa May in 2019. Elsewhere, the The U.S. dollar index (DXY) slipped to break the key threshold of 95.00 in New York session trading yesterday.
When the news was written at the end of the Asian session (January 13), DXY still continued its decline to the range of 94.90s. The U.S. inflation data release showed the price growth at the consumer level.
