Pound sterling soars after general election victory

on Dec 16, 2019
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  • The massive Conservative party victory gives Boris the mandate to end the uncertainty since the referendum to exit the European Union began.
  • Markets expect the sterling surge to draw foreign investment back to the UK.
  • Successful election results at the election for the Conservatives cause the pound to rise healthily against the euro and dollar.

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The massive Conservative party victory gives Boris the mandate to end the uncertainty since the referendum to exit the European Union began.

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Markets expect the sterling surge to draw foreign investment back to the UK. Traders who also bought into the bull run of the pound on the eve of the election also expect to make huge profits.

The significant move from the current level of $1.33 would slash the cost of imports, reduce the cost of living, and increase spending power for families, eventually boost the economy.

Mansoor Mohi-uddin, a senior strategist, said: “Sterling is set to rally into a higher $1.35-$1.45 range near term against the greenback as an orderly exit from the European Union in January and the increased chances of smoother trade negotiations during 2020 lift confidence in the UK economy.”

According to Samuel Tombs at Pantheon Macroeconomics, markets also expect international and domestic businesses to unleash pent-up sending as confidence in the financial markets builds. 

Business confidence should recover, now that a no-deal Brexit isn’t a risk in January 2020, and the outlook for domestic policy over the next five years is relatively clear.”

Many firms will be able to invest, knowing that corporation tax likely won’t rise, wages won’t increase rapidly, and Labour’s socialist agenda will not be implemented soon,” he added.

The pound has risen against the US dollar

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Wall Street titan Goldman Sachs predicted Britain would benefit from an array of stimuli under Mr. Johnson.

Its economist Adrian Paul said that as well as renewed business investment, “a pick-up in global growth” and increased public spending should mean GDP growth in the second half of 2020 to hit an annualized 2.4pc.

Successful election results at the election for the Conservatives cause the pound to rise healthily against the euro and dollar.

The pound is currently trading near a three-and-a-half-year high against the euro and an 18 month high against the dollar.

The election outcome boosted the sterling for three reasons.

  • The Tories victory allows a smooth and orderly Brexit in January.
  • Boris has a significant degree of flexibility over the Brexit process, either to pursue a ‘softer’ Brexit and closer relationship with the EU or to extend the transition period if he desires to do either.
  • After Labour’s disastrous night, the market is pricing out ‘Corbyn risk’ with the Labour leader’s tenure over.

Going forward, sterling should remain relatively well-supported, with focus likely remaining on the Brexit process rather than the economic fundamentals.

However, Brexit is still looming and has caused considerable fluctuations in value, so holidaymakers should look at planning to get the best deal rather than wait until the day before they travel.

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