Increasing conviction that the Conservatives will win a majority in the 12 December general election has apparently caused sterling to jump to its highest level since May against the dollar and the euro.
The pound bought $1.31 on Thursday morning, while the euro rate moved above €1.18.
“Markets view a healthy Tory majority as the best outcome for UK risk assets, at least in the short term, as it would lead to an orderly withdrawal from the EU at the end of January following years of uncertainty,” explains the Financial Times.
Traders are betting on a Conservative victory, says the newspaper, although several investors have warned the currency is now vulnerable to any tightening of the polls.
The latest YouGov survey, which ended on 3 December, gave the Tories a nine-point lead over Labour.
“The election is Boris Johnson’s to lose,” Dean Turner, an economist at UBS Wealth Management, told the FT yesterday.
Joshua Mahony, a senior market analyst at the spread betting firm IG, added: “While we have seen gains for the Labour party, there is a feeling that it may be too little too late, as we stand just eight-days from election day.
“From a market standpoint, a Conservative majority would likely come with a sharp surge in the pound, and thus the upside we are seeing in sterling reflects the market willingness to take on some risk with a view to getting into this GB pound trade early.”
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The performance of the pound against the dollar was observed by The Wall Street Journal, which said Sterling “trimmed its post-Brexit referendum losses against the greenback to 13%, from about 18% in the immediate aftermath of the 2016 vote. Before the referendum, the pound hovered at around $1.50.”
Kenneth Broux, a currency strategist at Societe Generale, said: “In terms of cable (sterling/dollar) and euro/sterling, we’ve been trading at $1.30 and 85 pence respectively in the last few weeks and not managed to break through until today.
“Technically these are important levels. I think some investors may be saying to themselves, well you know what, the polls haven’t changed much so let’s put a bit more money on the table, add to long sterling positions.”