Abu Dhabi, UAESunday 9 August 2020

British pound soars as Boris Johnson secures sweeping majority in UK election

Sterling touched almost 19-month high versus the dollar

The pound rocketed 2.5 per cent higher to $1.3516 - it’s highest since May 2018. Bloomberg
The pound rocketed 2.5 per cent higher to $1.3516 - it’s highest since May 2018. Bloomberg

The British pound surged almost 2.5 per cent after the Conservative Party won a strong majority in the UK election that industry analysts believe will ensure a smooth Brexit from the European Union.

It was the biggest one-day gain in the last three years - a significant high for a currency that has become tremendously volatile since the 2016 Brexit referendum that badly hammered sterling.

Results from counting overnight showed the Tories had crossed the threshold of 326 of the 650 seats in the lower House of Commons, meaning they could not be beaten. Exit polls from Thursday's vote indicated they could win 368 seats.

“The British pound jumped 2 per cent in a split second when the exit polls pointed to a huge Conservative majority and has held the gains since the results confirmed it,” said London Capital Group's head of research, Jasper Lawler.

The big moves in the currency markets build on the “already substantive gains for the pound” since the election was called, he added.

The pound touched almost 19-month high versus the dollar and its strongest levels against the euro since shortly after the Brexit referendum. Analysts expect further strengthening of pound.

“Last night was the knee-jerk speculative response to the election but we think there is more room to the upside for sterling,” said Mr Lawler.

The pound rocketed 2.5 per cent higher to $1.3516 - it’s highest since May 2018 - in the immediate aftermath of the exit polls. It later settled at $1.3472, up 2.3 per cent, according to Reuters.

Against the euro, sterling rose as high as 82.80 pence, up more than 2 per cent on the day, leaving the pound at levels last seen in July 2016. The pound traded around 76 pence per euro before the June 2016 Brexit vote.

UK Prime Minister Boris Johnson’s decisive election victory will be warmly received by investors seeking clarity and direction on Brexit, said Lukman Otunuga, senior research analyst at currency brokerage FXTM.

“This sentiment has already been reflected in sterling which has appreciated against every single G10 currency and jumped more than 2.5 per cent versus the dollar to breach 1.35 – its highest level since May 2018,” said Mr Otunuga.

While the pound is “positioned to push higher on Brexit optimism”, the longer-term outlook may be “clouded by how easy the withdrawal agreement will pass through the Parliament and what happens during the transition period”, said Mr Otunuga.

Since becoming the Prime Minister earlier this year, Mr Johnson's rise in the polls has coincided with sterling strengthening. He has vowed to take the UK out of the EU next month and his party has selected candidates who back his view.

Updated: December 13, 2019 12:35 PM

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