It’s been a good week for Sterling, as it makes gains amidst new polls hinting at a Conservative majority in the upcoming General Election on 12th December. The pound has become its strongest against the euro in six months, as a result of several factors, including the publication of new polls and announcements from several political parties.
Nigel Farage boost to Conservative party
One of the main reasons for the increase is the recent announcement from Nigel Farage that his newly founded Brexit Party would not stand against existing Conservative seats. The Brexit Party is seen as the main rivals to the Conservatives, with the former winning many seats at the European Elections earlier in the year. Support for the Brexit Party comes from many typical Conservative voters who voted to leave the EU, with the newly founded party taking on the role of UKIP, which was seen as an EU protest party and the Conservative’s main rivals several years ago.
Odds on a Conservative majority have increased by about 20% since last week, according to betting markets. The most recent YouGov poll pointed to a Conservative lead of 14 points over Labour. Sterling will continue to grow if there is a Conservative majority, as this would increase the chances of a Brexit deal and bring some certainty to the markets.
However, as seen from the 2017 General Election, opinion polls are just that- with the result potentially being very different. There are still many other possible outcomes from 12th December, which will all have differing impacts on the pound t euro exchange rate. A Labour majority might see a small fall at first, despite it being possible that Labour might opt for a soft Brexit, or even a second referendum. However, it’s Labour’s domestic policies which concern the markets, and present worries over Government spending and squeezing out profits from the private sector and shutting out foreign investment.
It’s worth noting that if the Liberal Democrats were to win a majority- which does seem unlikely- then the markets are likely to react positively. This is due to the Party’s pro-EU stance, and their business policies, which are reported as more friendly than Labour’s.
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