British Prime Minister Elizabeth Truss has announced her resignation. We cannot say that this decision was unexpected and sensational amid high-profile events of recent weeks. Truss has only been in office for 45 days and is leaving Downing Street with a 12% approval rating, a rebellious party, a financial crisis, an open conflict with the Bank of England and one minister after another. The foreign exchange market will also remember the period of her premiership - after all, thanks to her initiatives, the pound has updated a historical low, collapsing against the dollar to around 1.0345. And in general, the financial world felt the consequences of her reign quite sharply: the collapse of British government bonds loudly swept through the global financial market, provoking an unprecedented resonance.
Let me remind you that Truss's predecessor, Boris Johnson, resigned because of the "Covid parties", which became the last straw for his opponents even within the Conservative Party. Johnson's predecessor, Theresa May, left office early because she could not implement Brexit, and her predecessor, David Cameron, on the contrary, because he actually launched the Brexit process.
The fate of Elizabeth Truss was decided by the notorious anti-crisis plan, which assumed the easing of the tax burden. She was widely criticized for her tax initiatives, because of which she had to hastily change the finance minister and abandon the budget plans announced earlier (during the election campaign). But the prime minister failed to extinguish the blazing fire: her rating collapsed, as did the rating of the Conservative Party, of which she is the leader. And all this happened amid growing economic problems in the country.
Therefore, Truss' statement was predictable. The day prior, the British press was even full of headlines that she had only a few hours left in the post of prime minister. And after the Cabinet of Ministers began to voluntarily leave the members of the government (in particular, the Minister of Internal Affairs), even Truss' supporters shrugged their shoulders.
And that is why the pound reacted relatively calmly to the news of Truss' resignation. Moreover, the pound even grew against the dollar, again testing the 13th figure. However, it is still risky to open positions for the pair, as Britain will soon find itself in conditions of political turbulence.
According to the established procedure, the ruling Conservative Party must now elect a new leader/prime minister – according to the same procedure that Truss herself was recently elected. Until then, she will serve as the head of the government. The main opposition political force, represented by Labour, has already demanded early parliamentary elections. The leader of the Labour Party accused the Tories of loading the country "into chaos and economic abyss."
Nevertheless, general parliamentary elections are unlikely now. After all, according to recent polls, if elections are held this month, the Conservatives will lose up to 70% of their seats in parliament. By the way, this is the political tragedy of the moment for the Conservative Party – they are forced to hold the helm of the ship amid low electoral support of the population.
To date, the main favorite of the election race is Rishi Sunak, who previously headed the British Ministry of Finance in Boris Johnson's cabinet. Actually, Johnson himself is also ready to enter the race – his chances of re-heading the government are quite considerable. Another possible figure is the current Chancellor of the Exchequer, Jeremy Hunt (former Foreign Secretary).
Judging by the reaction of the British currency, GBP/USD traders welcome Rishi Sunak as the main contender for the prime minister's chair. During his previous election campaign, he made it clear that he did not want to allow an increase in the national debt – his program did not include tax cuts. At the same time, Sunak promised to reduce the basic income tax rate from 20% to 19% "no earlier than 2024," when, in his opinion, the country's economy will be "in the best shape." At the same time, Liz Truss called her opponent a "socialist" for raising taxes in response to the economic damage caused by the coronavirus pandemic. As we can see, now this criticism has "played with new colors" in the light of the upcoming political battles.
Thus, the pound may show increased volatility in the coming days, reacting to political news. Especially if Boris Johnson enters the election campaign, who, despite all his flaws, can compete with Rishi Sunak. Given the possible price turbulence, it is now best to take a wait-and-see attitude for the GBP/USD pair: the tone of trading will be set by political factors that are a priori unpredictable.
