The pound enjoyed a rebound as Boris Johnson dropped out of the leadership race, leaving Rishi Sunak as the favorite to become prime minister.

On Monday morning, the FTSE 100 started the day up 0.5%, topping the 7,000 mark for the first time in a week.

And the pound rose to $1.13.

The value was higher than most points in the past 10 days and follows a statement by the former prime minister Mr. Johnson came out of Tory leadership race.

Assuming that the former chancellor Mr. Sunak will become the next prime minister, the market reacted on expectations that he could fix Britain’s finances, which suffered last month when the pound hit a record low against the dollar and the Bank of England had to intervene to prevent collapse in the pension sector.

The rebound came from a low on Friday afternoon when the pound was trading at $1.11, coinciding with news that Mr Johnson was seeking a re-election as Conservative Party leader.

Friday morning brought other bad financial news for the UK.

Ratings agency Moody’s was the latest agency to weigh in on the UK’s financial outlook. It was cut from “stable” to “negative” due to policy uncertainty amid high inflation and weaker growth prospects.

Moody’s said the government’s “ability to inspire confidence in its commitment to fiscal prudence” will be considered by Moody’s when “resolving the negative outlook”.

There were also fears that Chancellor Jeremy Hunt’s promised October 31 financial report would be delayed by the new prime minister.

Similarly, sterling fell against the euro shortly after midday on Friday to €1.13. It also rose to €1.15 on Monday morning.

It’s a positive morning for UK finances across the board.

The markets do not expect this Bank of England set interest rates at just under 5%, below the 6% expected in the weeks following the mini-budget.

This lower expected rate probably means cheaper mortgage payments for homeowners.

The cost of government borrowing also fell on Monday morning. The interest rate the payments the government must make on the money it borrows from the market fell from 4.1% to 3.8% over ten years, the benchmark, the bond, the IOUs actually claim.

https://news.sky.com/story/pound-rallies-after-boris-johnson-exits-tory-leadership-race-12728928