The pound surged to a high of US$1.3515 overnight after the exit polls to the UK elections showed a huge Conservative victory. This was the strongest that the pound has traded at since June 2018. The pound closed Thursday’s session up 2.1% at US$1.one of its biggest one-day gains on record. The pair is consolidating those gains in early trade on Friday.
At the time of writing Boris Johnson and the Labour party have secured 361 seats to Labour leader Jeremy Corbyn’s 202 seats with just 5 seats remaining to be declared. This is the Conservatives best election performance since Margret Thatcher in 1987. Meanwhile, it was Labour’s worst election performance in modern history.
The solid Conservative lead secured by Boris Johnson will mean an end to the political gridlock that has paralysed parliament since Theresa May lost her majority in the 2017 elections. For Brexit this means that Boris Johnson has won an undeniable mandate to get Brexit done. Boris Johnson’s Brexit bill will almost certainly be ratified by Parliament and quickly enabling the UK to leave the EU on 31st January with a deal in place. Pound investors expect this to bring to an end the Brexit uncertainty that has weighed on the UK economy since the Brexit referendum.
The unexpectedly strong majority could also help Boris Johnson secure an extension to the transition period next ear, which is due to end at the end of 2020. This is unlikely to be sufficient time to complete a trade deal with the EU, so an extension will be required in order to avoid a no trade deal Brexit.
Brexit aside, historically large functioning majorities in Parliament are good news for the pound.
Dollar Slips As Risk Sentiment Improves
The US dollar has slumped steeply lower across the board as global risks ebb. The solid Conservative win and developments in the US — China trade talks mean that some dark clouds are clearing on the horizon and risk sentiment has picked up. As a result, investors are selling out of the safe haven dollar.
The US and China have agreed to a trade deal in principal, meaning that the US tariffs on 15th December will not be applied and global risks are ebbing.
|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.