After a volatile session on UK election day, the pound has soared following the release of the exit polls. The pound is up 2.6%, hitting a high of US$1.3512 versus the dollar at the time of writing. This is the highest level that the pound has traded at in 18 months.
According to the exit poll the Conservatives and Boris Johnson are forecast to achieve 368 seats in the election versus Labour’s Jeremy Corbyn’s 191 seats. Boris Johnson needed over 326 to have a majority. Instead he looks set to have a stunning victory with a solid majority of 86 seats, the largest Conservative majority since 1987.
It is important to acknowledge that this is a poll sand not the actual result. However, it could be a good indication of a solid win by Tories and the worst result for Labour in modern history.
Tory Functioning Majority
Should these results prove to be correct, the Conservatives will have a functioning majority in Parliament. This means that the gridlock that has paralysed UK Parliament and politics since Theresa May lost her majority in 2017 will be over.
This is important for the pound because an overall Tory majority is the most likely way for Boris Johnson’s Brexit deal to be quickly voted through Parliament, enabling the UK to leave the EU by 31st January with a deal. These elections were about Brexit. A smooth Brexit will put an end to the Brexit uncertainty that has dragged on the UK economy for the past three and a half years and will also give Boris Johnson some breathing space for extending the transition period next year.
This was the most market friendly result and the preferred result for the pound and the financial markets.
SNP Landslide Victory
The other standout winner this evening was the Scottish National Party, which according to the polls is set to win 55 seats of a possible 59. Should this be the result, it could potentially add weight to the SNP’s demands for a second referendum, which leader Nicole Sturgeon wants to hold next year. This would not be pound favourable, although is less significant than Brexit.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 GBP = 1.28934 USD
Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound.
Or, if you were looking at it the other way around:
1 USD = 0.77786 GBP
In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar.