Home Breaking Pound soars after Boris Johnson’s thumping victory

Pound soars after Boris Johnson’s thumping victory

by LLB Editor
13th Dec 19 6:07 am

The pound soared against the dollar as the Conservative Party won an overall majority in the UK general election.

Sterling gained 2.2% to $1.34 – its highest level since May last year – on hopes that a big majority would remove uncertainty over Brexit.

Expect the pound to soar above predictions to $1.40, billions of pent up business investment to be unleashed to boost the economy, and the FTSE 100 to open stronger before paring back, as Boris Johnson’s Conservatives secure an impressive majority in the UK general election.

But there are many serious challenges ahead, warned the CEO of one of the world’s largest independent financial advisory organisations.

Nigel Green, chief executive and founder of deVere Group, comments: “The pound has enjoyed its biggest surge in a decade on the hopes that a solid Conservative majority can finally end the Brexit deadlock.

“Many traders were caught off guard by the size of the majority and this may push the pound even higher than previous predictions. We could see bullish traders now take it to $1.38 or maybe even as high as $1.40.”

He continues: “With more political certainty due to the large majority, the UK economy is also likely to receive an election bounce.

“Billions of pounds in business investment that has been on the sidelines due to the parliamentary paralysis is now ready to be unleashed. This will give a much-needed boost the slowing British economy.”

He goes on to add: “The UK’s FTSE 100 will open higher on Friday morning. However, this is likely to be a positive knee-jerk reaction, with some gains likely to be given up throughout the day as most FTSE companies earn in dollars and the pound is stronger.”

The deVere CEO also offers a cautionary caveat: “It now looks more likely that Boris Johnson will indeed be able to ‘get Brexit done.’

“His party’s large majority in the Commons helps him pass his Brexit deal and it gives him more political sway when negotiating the UK’s future relationship with the EU and reducing the risk of no-deal at the end of 2020.

“However, there’s still a long way to go. Mr Johnson’s self-imposed end of December 2020 deadline is a mammoth challenge, and a no-deal Brexit is still possible on 1st Jan 2021.

He adds: “The result election also puts a question mark over Scotland’s future in the United Kingdom. The SNP’s gains will embolden them in their key aim of securing Scottish independence.

“Mr Johnson’s monumental task to deliver Brexit with a deal and the Scotland issue will continue to fuel uncertainty in 2020.”

Mr Green concludes: “Boris Johnson’s election gamble has paid off.  Christmas has come early for the pound, the British economy and UK financial assets.”

Ranko Berich, Head of Market Analysis at Monex Europe said, “In a novel change for markets, this morning’s political developments have seen sterling climb up a cliff instead of falling off one. Boris Johnson’s commanding majority has a number of implications for the pound, but important questions remain unanswered and so, for now, sterling’s rally may struggle to extend much further.

“The size of the Conservative majority has important implications for Brexit. Boris Johnson now has a wealth of options for dealing with the EU, but the trajectory of trade talks remains a major unknown factor for sterling at the moment.

“With a stronger hand for dealing with eurosceptic hardliners, Johnson is in a position to offer concessions for a free trade deal, such as the border in the Irish Sea that enabled his withdrawal agreement breakthrough. But a strong majority could prove a double edged sword for sterling as the new Government could decide its majority means it has a strong hand for hardball tactics with the EU.

“Despite questions remaining over future relations with the EU, tonight’s events represent a material reduction in overall uncertainty. This is important for sterling, hence the 3% rally we’ve seen on the night. Despite this, sterling remains well below pre-referendum levels. How far sterling can continue to rally over the next 12 months will depend on how much momentum the economy can regain. This will depend heavily on the behavior of UK businesses, which have choked off investment for much of the past two years. If UK businesses begin to invest again, combined with looser fiscal policy, the economy will enjoy a post-Brexit bump in 2020, enabling sterling to at least get a glimpse of the sunlit uplands of pre-referendum levels.”

 

Ranko Berich, Head of Market Analysis at Monex Europe said, “In a novel change for markets, this morning’s political developments have seen sterling climb up a cliff instead of falling off one. Boris Johnson’s commanding majority has a number of implications for the pound, but important questions remain unanswered and so, for now, sterling’s rally may struggle to extend much further.

“The size of the Conservative majority has important implications for Brexit. Boris Johnson now has a wealth of options for dealing with the EU, but the trajectory of trade talks remains a major unknown factor for sterling at the moment. With a stronger hand for dealing with eurosceptic hardliners, Johnson is in a position to offer concessions for a free trade deal, such as the border in the Irish Sea that enabled his withdrawal agreement breakthrough. But a strong majority could prove a double edged sword for sterling as the new Government could decide its majority means it has a strong hand for hardball tactics with the EU.

“Despite questions remaining over future relations with the EU, tonight’s events represent a material reduction in overall uncertainty. This is important for sterling, hence the 3% rally we’ve seen on the night. Despite this, sterling remains well below pre-referendum levels.

“How far sterling can continue to rally over the next 12 months will depend on how much momentum the economy can regain. This will depend heavily on the behavior of UK businesses, which have choked off investment for much of the past two years. If UK businesses begin to invest again, combined with looser fiscal policy, the economy will enjoy a post-Brexit bump in 2020, enabling sterling to at least get a glimpse of the sunlit uplands of pre-referendum levels.”

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