Sterling traded below $1.25 on Thursday, little changed, after new Prime Minister Boris Johnson filled his cabinet with Brexiteers and vowed to leave the European Union on Oct. 31 with or without a transition deal.
Johnson’s victory was largely priced into sterling. It has lost more than 5% of its value since early May and recently touched a 27-month low against the dollar and a six-month low versus the euro. A small recovery since was caused largely by profit-taking from investors short the currency.
“Sentiment towards the pound doesn’t seem to have improved – on the contrary, three-month risk reversals continue to decline, showing that people are getting increasingly negative on the currency,” said Marshall Gittler, a currencies analyst at ACLS Global.
“So I believe this is just a temporary respite and I remain long-term bearish on GBP.”
Attention now turns to whether Johnson will stick to his rhetoric about trying to extract more concessions from the EU and taking Britain out of the EU in October without a trade deal if he can’t get them.
Johnson will meet his Brexiteer-dominated team of senior ministers for the first time on Thursday to discuss how to persuade the EU to agree to a new Brexit deal.
The EU has so far repeatedly refused to rewrite the withdrawal agreement, but it has said it could change a so- called political declaration on future ties.
Sterling edged lower by 0.1% to $1.2473.
Against a euro weakening across the board before the European Central Bank meets, the pound was flat at 89.225 pence.