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Pound Surges as Expected After the Tory Win

Pound Surges as Expected After the Tory Win

Published: December 16th, 2019

– The Sterling Pound jumped more than two cents against the US Dollar following the huge Tory majority win in the UK Elections.

There has been an intense political uncertainty hanging over the UK for some time now. And so, when the news of the exit polls placed Boris Johnson and his Conservative Party on track to win a big majority, the pound surged two cents against the dollar.

As soon as the news of the exit poll that gave the Tories a majority of 86 seats, the pound strengthened its position against the dollar to stand at $1.35. It also gained a similar margin on the Euro to post €1.21.

Now with the win in the bag for Boris, it is expected that the FTSE 100 share index will rise. Though the FTSE’s chart was relatively flat at the start of trading on Friday, December 13, 2019, it is expected to rise with Futures trudging towards a 0.2% increase by close of business on Monday, December 16, 2019, according to the data provided by ETX Capital.

This jump is the highest the pound has recorded since 2017, and its steepest level in more than a year and a half. The currency is expected to keep the rally with some industry experts predicting that the Sterling will hit $1.40 against the Green Buck.

Nigel Green, CEO of the financial advisory firm deVere Group said that the size of the Tory majority caught many traders by surprise, a situation that he says may push the pound even higher than earlier predicted. He foresees a situation where bullish traders may push the pound to $1.40.

The rise is welcome news to investors because it signals the end to the parliamentary duel over Brexit, which has placed a cloud of anxiety over the UK economy for months now.

The Gainers

Banks, utilities, and building contractors rose sharply as investors put more pressure on stocks in the said segments of the economy. Economy builders that had been hit by the premise that a confused Brexit would distort the demand for new houses saw their shares soar to the double-digit range, scoring between 10% and 16%.

With the threats of nationalization fading after a Jeremy Corbyn loss, shares in the utility also experienced a price spike. The biggest gainers in the FTSE 100 included the Perth, Scotland-based SSE Plc, which rose almost 10%. Centrica and United Utilities rose 8%, same as BT, which Labour Party had threatened with nationalization had it won the elections.

Travel and Leisure, as well as Retail stocks, also rose. Financial analysts attribute the gains to the decisive election adding that the possible conclusion of more than three years of both political and economic uncertainty will bring an increase in consumer spending as it boosts confidence in the UK economy.

Marks & Spencer, a leading British multinational retailer also rose some 9% boosted by the promise that shoppers may step up the spending during Christmas. Next, a British multinational household goods manufacturer and the supermarket chains Tesco, Morrisons, and Sainsbury were the other gainers whose shares rose by between 2 and 4%.

A stronger Sterling Pound also means the costs of holidays abroad. As such, holiday planners should expect to see their fortunes change soon.

The Losers

The Tory win is not all rosy for everyone. The biggest losers are the multinationals who gain less with a stronger pound since this affects their income from their operations abroad. Unfortunately, most of these companies make a larger percentage of the blue-chip index.

Analysts hope, however, that the loss will not harm the economy to a great degree because of the measure Johnson’s government plans to institute in an attempt at broadening the economy. For starters, The Conservatives have promised to increase government spending, which is a remarkable shift from the past.

Implemented properly, an increase in government spending will not only broaden the economy but it will also pile an upward pressure on the Central Bank of England’s interest rate. The result will be a further rise in the value of the pound.

Skepticism in the Currency Markets

Even though much of the attention of the traders in the currency markets focused on the happenings on the election day, their action now may not make much of a difference to the pound. Instead, the direction the currency takes in the long-term with be a factor of the withdrawal agreement that is before the house.

Subsequent trade negotiations after Brexit will also have a bearing on the pound.

More skepticism also stems from the track record of the pound especially its thunderous fall after the UK voted to leave the European Union in June 2016.

Effects of a Stronger Pound on the Forex Trading Floors

As the UK economy assumes some semblance of stability, the strong pound is a lot likely to attract more foreign investment to Blighty. The value of the pound against the dollar and other major currencies may remain high. However, the other currencies may experience a windfall due to favourable turns of events in their respective economies and this may create a flux.

You should also expect market corrections. Already the pound is standing at $1.33 against the green buck and $1.75 to the Canadian dollar. Going into the new week, it is expected that the pound will sustain $1.94 to the Aussie dollar or higher and an above $2.02 to the New Zealand dollar.

In Summary

This past week has been great for the UK and the Sterling Pound. As the country gets its affairs in order, the key beneficiary from the decisive election seems to be the domestic currency. Whether it will hold and remain strong in the face of the volatile currency market remains to be seen. However, one thing is certain, a breezy Brexit sells it more credit and with that, a stronger position among the world’s major currencies. The coming weeks will probably see it appreciate even more. And, this factor makes it the better half of any Forex pair you trade in now.