One sterling risk less, Boris Johnson pulls out of leadership race – Commerzbank

Sterling was able to benefit from the fact that Boris Johnson pulled out of the leadership race. While economists at Commerzbank consider this initial market reaction to be correct, too much strength is not justified either.

Johnson’s his return to office would have been GBP negative

“As British politics under Johnson’s leadership would have threatened minimal consensus with Europe, his return to office would have been GBP negative. However, until it becomes clear who is going to be the next British Prime Minister and what the view of the next government towards Europe is going to be, too much GBP strength is not justified either.”

“The less attractive Great Britain seems as a location for investment the smaller the world’s appetite to send capital to the island is likely to get. Investors do not benefit from British consumption. For that to happen, British demand for imports has to shrink. And that happens mainly via GBP weakness.”