Sterling went into a small decline on Friday, as traders in the market booked profits on the pound’s historic rise following the General Election result. We’re wondering whether sterling has made as many gains as it can for 2019, or whether it could still make gains.
Conservatives Boost Sterling
The sterling to euro rate dropped below 1.20 to 1.1940 on Friday afternoon, following highs of 1.2080 when the exit poll had been released at 10pm on 12th December. The pound to dollar rate fell to 1.3324, after reaching a high of 1.3514 following the exit poll confirming that the Conservatives were on track for a sizeable majority against Jeremy Corbyn’s Labour Party.
Earlier in 2019, there were several near misses where it was thought that the UK would crash out of the EU with no deal. However, since Boris Johnson began his premiership over the summer, the pound has slowly been gaining. The signing of a new Withdrawal Agreement between the UK and the EU and the increasing likelihood of a Conservative majority gave sterling a bit of a boost.
There’s already been a lot of good news for the British pound, especially over the latter half of this year. It’s grown 13% since September against the US Dollar, and likewise from the euro in August. Given the political stability, it should become less volatile in the meantime.
Despite this small dip, the British pound is 2019’s best performing currency. Over the year, it has made gains of 7.4% against the euro, and nearly 5% against the dollar. Over the last seven days, we’ve seen it gain .5% against the euro and 1.50% gains against the dollar.
Johnson Brings Certainty- but for How Long
Now there’s a comfortable Conservative majority, investors believe that Boris Johnson and his Cabinet will open up economic and political certainty for the next five years. ONS data shows that GDP growth in the UK stalled from October- key reasons being uncertainty over Brexit and the UK’s future political stability. Businesses have held back on investment decisions until the future of the UK appeared clearer.
Will 2020 be the year of sterling? We can only hope so given the reaction of the markets to Boris Johnson’s “stonking majority” from last week. However, this will only happen if the Prime Minister can successfully navigate the UK’s way out of the EU and secure trade deals to allow the UK to prosper.
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