The British pound leaped half a cent to $1.35 on a report that British Foreign Secretary Boris Johnson "will resign before the weekend" if Prime Minister Theresa May opposes his demands on Brexit.
Sterling slid nearly 1 percent on Monday after Bank of England Governor Mark Carney said that any interest rate rises would be "gradual" and "limited". It bounced back Tuesday afternoon after the U.K.'s Telegraph newspaper reported that Johnson could resign before the weekend if Theresa May adopts a "Swiss-style" Brexit arrangement in her speech in Florence on Friday.
The Foreign secretary is an outspoken supporter of the U.K.'s departure from the European Union. He reportedly said he would have no option but to quit his government role if May promotes continued payments to the EU in exchange for access to the single market.
But Johnson later rebutted the story. Asked directly in New York whether he would resign, he said, "No," according to the Press Association.
"We are working together, that is the key thing, to make sure that Britain can take advantage of the opportunities of Brexit."
Nevertheless, currency investors made bullish signals Tuesday afternoon, as the currency neared its post-Brexit high of 1.36 to the dollar.
Stephen Gallo, European head of FX strategy at BMO Capital Markets, told CNBC via email: "His departure may mean a higher chance of a 'soft Brexit' which the FX market will treat as GBP-positive. However, his departure could also lead to a wider rift within the CON (ruling-Conservative) Party itself."
Speculation about a challenge to May's leadership gathered momentum Saturday after Johnson set out his own plans for Brexit.
Such plans included:
- Reaffirmation of £350 million ($473) to be spent on the U.K. National Health Service
- No payments to the EU for continued access to the single market
- Reformation of the country's tax system
A spokesperson for the U.K. Foreign Office declined to comment when contacted by CNBC.
CNBC has reached out to Johnson for comment.