eichengreen168_TOLGA AKMENAFP via Getty Images_sterling exchange rates TOLGA AKMEN/AFP via Getty Images

Boris Johnson Leaves Behind a Sterling Mess

Investors appear to view the British pound more like the currency of a troubled emerging market than of a stable advanced economy. And now, with Prime Minister Boris Johnson’s resignation and the attendant political uncertainty, sterling is poised to sink further.

BERKELEY – British Prime Minister Boris Johnson’s chaotic government, and its equally chaotic collapse, are not the only source of panic in the United Kingdom nowadays. There is growing anxiety about the exchange rate of the British pound as well.

Since peaking in the spring of last year, the pound has depreciated by about 10% against the dollar. “Britain’s currency is getting slaughtered on international markets,” we are told. Of the five currencies underlying the International Monetary Fund’s reserve asset, special drawing rights, only the Japanese yen has done worse than the pound.

Traders appear to view sterling more like the currency of a troubled emerging market than of a stable advanced economy. And now, with Johnson’s resignation and the attendant political uncertainty, sterling is poised to sink further.

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