Brexit Waiting Game; Who’s Next? What GBP positioning we could expect after first couple rounds of votes

The Conservative Party will deliver a new Prime Minister to Britain on the week of July 22nd. A lot will happen before we have clarity on who the final two candidates will end up being and we could see the British pound trade more so on the broader dollar moves, than to anything about the UK economy in the short-term.

About 11 MPs are interested in running, two candidates, James Cleverly and Kit Malthouse have dropped out, and more are expected to announce their intentions. Nominations will close on June 10th.

The crowded field of candidates will thin following initial ballots on June 13th, 18th, 19th, and 20th. The key thresholds for the first round of voting is 16 votes. The second round will require 32 votes. The next rounds will then see the candidate with the least votes be excluded, which will likely see many dropping out when it becomes apparent they will not win the top spot. Once the field is narrowed to the top two, the Conservative Party and their over 200,000 members will decide on who gets to reside at 10 Downing Street.

Historically the front-runner does not do well with Prime Minister selections. In 2016, Boris Johnson was the front-runner, but he didn’t fair to well.  Eventually, PM May won after Andrea Leadsom dropped out. The current favored candidates are Boris Johnson, Michael Gove, Jeremy Hunt, Dominic Raab and Sajid Javid. If we end up seeing Johnson, Gove and Raab become the favorite after the first few rounds of voting, we could see GBP soften as the hardest Brexit odds will likely go up. If Javid or Hunt get the nod, that could be pound neutral or bullish.
Positioning also firmly depends on market expectations on Fed rate cuts, both timing and size. The dollar could be at a key turning point so the British pound could see a strong rebound if we see an easing of no-deal exit expectations.

Once we have a new PM, the scenarios for Brexit remain countless. The new leader will likely seek renegotiations with the EU, but if that does not go well, like it did for PM May, we could see a no-deal Brexit be pursued, a general election or even a second referendum.

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