LONDON: Sterling surged on Thursday and hit its strongest against the euro since shortly after the 2016 Brexit referendum after an exit poll indicated Prime Minister Boris Johnson’s Conservative Party was on course for a big parliamentary majority.
Investors, chastened by 3-1/2 years of political uncertainty in Britain, have seized on the likelihood of a decisive Conservative majority, believing it will allow Johnson to push ahead with getting Britain out of the European Union at the end of January.
“Just as Boris Johnson was desperately seeking his majority, this result would give the markets their ultimate wish: clarity,” said Dean Turner, Economist, UBS Wealth Management.
The exit poll, which suggested Johnson would get a majority of 86 - the largest of any Conservative leader since Margaret Thatcher won in the 1980s - sparked an immediate rally in sterling.
The pound had rocketed as much as 2.5% to US$1.3516 - its highest since May 2018 and putting the British currency on course for its biggest one day gain since January 2017.
Against the euro the move was even more striking. Sterling hit as high as 82.80 pence, up 2% on the day, and leaving the pound back at levels last seen in July 2016, shortly after the Brexit referendum that hammered the currency.
“Sterling has moved aggressively. I would anticipate we would get a decent rise in UK equities in the morning too,” said Peter Kinsella, Global Head of FX Strategy at UBP.
He said the move was a “relief rally” that the Labour Party under Jeremy Corbyn was highly unlikely to win and because of the size of the majority the Conservatives now looked set to claim.
The pound could move towards US$1.37 in the coming weeks as investors who have long underowned UK assets return, Kinsella added.
Political uncertainty has weighed on the pound and dogged the performance of British assets since the 2016 Brexit referendum.--Reuters