Sterling has surged to its highest in 31 months against the euro this morning at 1.1894. Two polls published over the weekend reported that the Conservatives would make enough gains to win a majority on Thursday’s election. One poll shows a lead of 14 points for Prime Minister Boris Johnson’s party, and the odds for a Conservative majority have shot to over 80% according to Betfair Exchange. Odds have risen by 10% weekly over the past two weeks for the Conservatives.
Sterling Strong as Tories Widen Gap with Labour
A poll for the Independent showed the Conservatives had risen two points to 41%, and Labour had lost a point, taking them down to 32%. Likewise, Survation’s poll for Good Morning Britain has the Conservatives up two points at 45%, and Labour down by the same margin at 31%. This would be enough to secure a majority for the Conservatives, as a lead of over 7 points is enough to give the leading party a majority. If the polls are accurate and the Prime Minister’s party wins by 14 points, that will be something of a landslide.
Assuming the polls stay roughly the same in the run up to polling day, we could see sterling maintain its strength. The pound to euro rate is at its highest today since May 2017. The pound to dollar exchange rate is at 1.3160, so it has just dipped below its 7-month high from last week. If the Conservatives end up with a majority government, the pound to dollar exchange rate might edge towards 1.35 in the next few weeks.
Will Brexit Strengthen the Pound?
Sterling would may against the dollar and the euro in the event of a Conservative majority because that would be the most likely way the UK will have an orderly Brexit. If Prime Minister Boris Johnson wins on Thursday, he will (in theory) have enough votes in Parliament to pass his Brexit deal, meaning that the UK can leave the EU on 31st January. This will give businesses the certainty needed after several years of political shockwaves which have extended to the markets, and will avoid the dreaded cliff-edge Brexit.
We can look at trends all we want when it comes to polling, but really, we won’t be able to predict with 100% certainty what the outcome of Thursday’s vote will be. Markets are on edge following the 2017 election, where Labour managed to increase their vote share in the final days of the campaign.
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