UK Prime Minister Boris Johnson has come under scrutiny after he admitted attending a drinks party in lockdown. The British Pound has proven resilient and did not fall following calls to resign.

The pound rose to its highest level against the US dollar and is close to two-year highs against the euro despite signs that members of the Conservative party are dissatisfied with the Prime Minister. This raises the chances of Boris Johnson being replaced as a leader in 2022.

Traditionally, the pound has come under pressure during periods of political instability, uncertainty or anxiety, such as the Brexit referendum, but the current developments have not impacted the pound. Sterling ignored political risks and reached two-month highs against the US dollar, proving that the markets are not convinced that Johnson will resign.

Controversy over the Downing Street party

Johnson has denied breaking any rules regarding the May 2020 gathering in the Downing Street garden. The Northern Ireland secretary, Brandon Lewis, has noted that the prime minister was “very, very sincere” when he apologised for attending what he thought was a “work event” and what his principal private secretary had called “socially distanced drinks.” Lewis told Sky news that the PM doesn’t believe that he has done anything outside the rules. “If you look at what the investigation finds, people will be able to take their own view of that at the time,” he added.

Johnson’s apology has not soothed the concerns of many Conservatives, with some of them including the Scottish Tory leader, Douglas Ross, and the senior backbencher William Wragg calling for him to resign. A number of other cabinet ministers were slow to express their support for Johnson.

Some MPs suggested Johnson was unremorseful when talking to colleagues after his apology at the House of Commons. Talking to BBC Radio 4’s Today programme, Lewis clarified that the PM regretted doing what he did and that he did “recognise the anger and upset and frustration that people feel at what they perceive happened at No 10.”

Sterling remains one of the best performing G10 currencies*

Despite the political controversy surrounding PM Johnson, the pound remains at the top of G10 currencies for the month.  Analysts have also underlined that the political risks are not threatening in any way as a UK election is not scheduled until 2024.

While this might be the most difficult period of Boris Johnson’s tenure, markets are not concerned and not willing to price in any political risks. Additionally, markets do not appear to be threatened by a new PM in the form of Rishi Sunak or Liz Truss who are the favourites among Conservative members. Both The Times and The Telegraph have published headlines pointing that Rishi Sunak is believed to have what it takes to be the next PM. The situation is also different than the election period of 2019, as there are no Brexit risks. The next PM is not expected to call a snap election and the government’s majority will remain intact.

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* G10 currencies are the most important currencies traded in the currency market and the most widely used within the financial markets. These include the US dollar, euro, British pound, Japanese yen, Australian dollar, New Zealand dollar, Canadian dollar Swedish krona, Norwegian krone, and the Swiss franc.