The pound extended gains today after the resignation of British finance minister Sajid Javid, as investors bet that his replacement would pave the way for a more expansionary budget next month.
Sajid Javid turned down the role of finance minister in Prime Minister Boris Johnson's new cabinet as he was asked to replace all his advisers, according to a source close to Javid.
He will be replaced by Rishi Sunak, previously second in command to the finance minister overseeing public spending.
Extending gains, the pound rose to Thursday's high of $1.3028, up 0.5% on the day.
It also extended its rally against the euro, up 0.6% on the day to 83.37 pence- its highest since December 16.
"There has been an ongoing rift for a while between Johnson's advisor Dominic Cummings and the Chancellor. One of the reasons for the fallour has been reportedly that Javid was much more conservative on fiscal policy," Jane Foley, an analyst at Rabobank said.
"The implication is that if Cummings is more supportive of the new chancellor then the budget will be more expansionary and the there will be less need for a Bank of England rate cut," the analyst added.
The British Prime Minister had been expected to keep Mr Javid in post and news of his resignation shocked Westminster.
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Allies of the former chancellor said the Prime Minister had ordered him to fire all of his senior aides if he wanted to remain at the Treasury - something Mr Javid refused to do.
The bombshell came after long-standing rumours of tensions between the ex-chancellor and Mr Johnson's closest aide Dominic Cummings.
In August he had fired Mr Javid's aide Sonia Khan and it appears Number 10 wanted to go further in keeping a closer eye on the chancellor.
Mr Javid said that "no self-respecting minister" could accept the condition being imposed.
"He has turned down the job of Chancellor of the Exchequer," a source close to Mr Javid said.
"The Prime Minister said he had to fire all his special advisers and replace them with Number 10 special advisers to make it one team.
"The Chancellor said no self-respecting minister would accept those terms," the source added.
Mr Javid had walked smiling into Number 10 in a sign that he expected to remain in place ahead of the March 11 Budget.
His departure came after Julian Smith was unceremoniously dumped as Northern Ireland Secretary, Andrea Leadsom was sacked as Business Secretary and Theresa Villiers lost her job as Environment Secretary.
Other senior ministers axed by Boris Johnson included Geoffrey Cox from his post as Attorney General and Esther McVey as housing minister.
Additional reporting from PA