The GBP react to poll projecting Conservative election win

The GBP react to poll projecting Conservative election win
Written by:
Andia Rispah
29th November 2019
  • A poll predicting a Conservative Party majority win in Dec 12 election lifted the pound.
  • The conservative majority odds in Betfair Exchange hit 70%, being their highest since Nov 21, after the poll was released.
  • The demand for 'put' options to sell the pound in the future now outstrips demand for the 'call' options to buy the pound.

A poll predicting a Conservative Party majority win in Dec 12 election lifted the pound.

The poll estimated the win at 68 seats under the model YouGov pollsters developed. The win would give Prime Minister Boris Johnson a mandate to take Britain out of the European Union on Jan 31. The divorce deal already negotiated with Brussels.

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The conservative majority odds in Betfair Exchange hit 70%, being their highest since Nov 21, after the poll was released.

Although the prospects of a Conservative win have boosted the pound, the case for more gains is still unclear according to the currency derivative markets.

It’s partly because Brexit in January does not remove all the uncertainty pressuring the UK economy as it merely fires the starting gun for potentially protracted negotiations on a future free trade deal between Britain and the EU.

The GBP has been the week’s other main beneficiary, adding half a percentage point as Conservative Party firms in opinion polls ahead of the Dec 12 election.

On Friday the pound was steady at $1.2910. The also euro held at $1.1012.

The market has come to the view that this is Johnson’s election to lose now,” said Chris Weston, head of research at Melbourne brokerage Pepperstone, with expectations he can win with a large margin.

That said, should any polls call this margin into question, where invariably there will be one or two, then GBP could see a sharp sell-off, although I would be using that weakness to buy.

The demand for ‘put’ options to sell the pound in the future now outstrips demand for the ‘call’ options to buy the pound.

The premium contained in one-month ‘risk reversals’ that straddle the election date reflects this position.

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