Sterling slides to post-pandemic low before new PM revealed

Sterling plumbed a fresh post-pandemic low on Monday as Russia kept one of its main gas supply routes to Europe shut, adding to recession fears on the day that Britain is set to announce its new prime minister.

The pound, one of the worst performing major currencies against the dollar this year, fell as low $1.1444 GBP=D3 — its weakest level since March 2020.

It has been battered by a deteriorating economic outlook and stubbornly high inflation – partly due to soaring energy prices – and political uncertainty after Prime Minister Boris Johnson announced his intention to resign in July.

And the latest slide in the pound comes just hours before Liz Truss is expected to be named leader of the governing Conservative Party and Britain’s next prime minister.

She is poised to take power at a time when the country faces a cost-of-living crisis, industrial unrest and a recession.

“The polls point steadily and increasingly at Liz Truss, unfortunately for the pound,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank in a note, citing uncertainty around Truss’s plans to review the Bank of England’s mandate.

“Along with tax cuts, and extra spending to freeze the energy bills for example, the UK’s sputtering macro metrics could be further fuming in the coming quarters under Truss’s leadership,” Ozkardeskaya added.

Monday’s leadership announcement is expected at 1130 GMT and will trigger the beginning of a handover from Johnson, who after months of scandal said in July he would step down.

Against the euro, the pound was broadly unchanged near 86.44 pence. EURGBP=D3

Gas prices meanwhile soared 30% at Monday’s market open after Russia on Friday announced it would keep the Nord Stream 1 pipeline closed, heightening fears of an energy supply crunch across Europe.