June 17, 2019 / 9:12 AM / a month ago

Pound falls to five-and-a-half month low as Johnson's lead grows

LONDON (Reuters) - The pound dived to a near six-month low against the dollar on Monday as concerns grew that arch-Brexiteer Boris Johnson will replace Theresa May as prime minister as he remains far ahead of his rivals in the race to lead their ruling Conservative Party.

FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

Johnson, the face of the official Brexit campaign in the 2016 referendum, has promised to lead the United Kingdom out of the EU with or without an agreement by Oct. 31.

(For a graphic on Trade-weighted sterling since Brexit vote, click: tmsnrt.rs/2hwV9Hv)

He got a boost in his campaign on Monday when one of his former rivals and EU supporter Matt Hancock backed him saying he was almost certain to win the contest.

“It looks like Boris Johnson is going to be the next prime minister unless there is a big surprise and that indicates a looming confrontation with the European Union,” said Lee Hardman, a FX strategist at MUFG in London.

A median forecast for the chance of a disorderly Brexit rose to 25% in a June 11-14 Reuters poll, up from the 15% in May.

On Monday, the pound weakened a third of a percent to $1.2554 against the dollar, its lowest level since a Jan. 3 flash crash. Versus the euro, the pound weakened to a five-month low of 89.43 pence.

“Euro/sterling can trade to 92 (pence) and possibly to 95 (pence) this autumn as investors digest the trade-off between a no-deal Brexit and early elections,” ING strategists said.

Latest positioning data also indicated that markets were getting cautious about the pound, with speculative bets against the British currency rising to a four-week high.

The second round of voting in the Tory leadership contest is set for Tuesday, with the result due around 1700 GMT. Any candidate with 32 votes or fewer is eliminated. If all candidates have more than 32 votes, the one with the fewest is eliminated.

(For a graphic on GBP positions, click: tmsnrt.rs/2IkJOqs)

(For a graphic on World FX rates in 2019, click: tmsnrt.rs/2egbfVh)

Reporting by Saikat Chatterjee; editing by Larry King

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