Markets shrug off Davis resignation as pound sterling and FTSE 100 rise

Traders have taken departure as sign soft Brexit is more likely

The resignation of Brexit secretary David Davis barely registered on markets as trading opened on Monday, with the pound edging up against both the dollar and the euro.

Mr Davis quit his cabinet job late on Sunday night following a major row with Theresa May over her plans for post-Brexit relations with the EU. Two junior ministers followed his lead almost immediately.

However, while the resignation has thrown the government into chaos, with predictions that it will spark a leadership contest, markets shrugged off the move.

Sterling rose 0.44 per cent against the dollar, to hit $1.3342, and increased 0.25 per cent against the euro to reach €1.1338.

Meanwhile, the FTSE 100 was up 0.27 per cent by mid-morning, with mining firms providing a boost.

Rebecca O’Keeffe, head of investment at interactive investor, said: “The Brexit secretary may be a bit disappointed that far from the market being devastated by the news, investors have shrugged off his departure.”

While she noted that Theresa May “still has a mountain to climb in terms of surviving any threats to her position and getting the white paper through parliament”, Ms O’Keeffe added: “Despite all the hurdles, the chances of a soft Brexit are rising, and if it can be done, some UK-focused sectors, as well as the pound itself, could become a lot more attractive.”

Experts said the strengthening of the pound was an indication that traders have taken Mr Davis’s departure as a sign that a soft Brexit is now more likely.

“Judging by the market reaction, investors interpreted the development as increasing the odds for a “softer Brexit”, as one of the leading Brexiteers left the administration and the negotiations may soon be able to move forward – if the EU accepts the plan, of course,” said Marios Hadjikyriacos, investment analyst at XM Group.

Hussein Sayed, chief market strategist at FXTM, said: “Trading the pound is going to be tricky in the coming days and will depend predominantly on how the negotiations with the EU develop after Davis’ resignation and the survival of Theresa May. However, from Monday’s market reaction, traders seem to believe we’re still heading towards a soft Brexit.”

Connor Campbell, financial analyst at Spreadex, said that “on the one hand it is odd the pound is in a decent mood”, as the resignation could put the soft Brexit agreed upon at Chequers in doubt.

However, he added: “Yet his resignation does potentially make it easier to implement said soft Brexit, dependent on how the next couple of hours and days pan out for PM May.”