Britain’s pound rallied to its highest level since May 2018 as an exit poll indicated Boris Johnson’s Conservative Party will secure a strong majority in the UK election, raising hopes of an end to the Brexit deadlock.
Sterling jumped 2.3 per cent to $US1.3460. It also strengthened by 2 per cent to 82.90 pence per euro, the highest since 2016 and the immediate aftermath of the EU referendum. The gains came as the survey undertaken by the BBC and other broadcasters said the party was on course to win 368 seats in the House of Commons, a majority of 86. That compares with the 28 seat majority projected by the YouGov opinion poll published earlier this week.
The sizable majority would allow Johnson to push his Brexit deal through Parliament by the end of January and move on to trade talks with the European Union, without having to rely on the votes of the pro-Brexit caucus known as the European Research Group.
“The numbers that people expected were 330 maybe 350 so to see 368 on the screen is incredible,” said Jordan Rochester, a currency strategist at Nomura International in London, speaking to Bloomberg Television. “The pound’s at $US1.34, I think it can go to $US1.3450, $US1.35. Unless the exit poll is wrong, it can stay there.”
He said he just messaged his clients and told them “to go home folks, pop open a bottle of wine, get a night’s sleep.”
Go home folks, pop open a bottle of wine, get a night’s sleep.Currency strategist Jordan Rochester’s message to clients
While exit polls don’t guarantee the final result, they have generally been reliable and one such survey in 2017 accurately predicted that then Prime Minister Theresa May would lose her majority in the last UK vote. Investors prefer the prospect of a Conservative majority government which can push through a Brexit accord and move on to the next phase of talks, with Johnson promising all of his lawmakers will back his deal.
“A strong majority means the withdrawal bill gets through in January and it also means the Prime Minister is less reliant on the ERG in trade negotiations next year,” said Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce.
“A strong exit poll will open the way for the pound to test year-to-date highs near $US1.34.”
Though a Conservative majority is seen as the most market-friendly outcome, not everyone expects it to lead to a sustained sterling rally.
Johnson pledged to “get Brexit done” by the end of January during the campaign, but in practice the deadline will signal the start of trade talks which could prove even more complicated than the process of negotiating Britain’s exit from the bloc.
Source: Thanks smh.com