Pound soars as Johnson scores big win
The pound has surged more than two percent as Prime Minister Boris Johnson's Conservative Party won a resounding election victory that markets believe makes an orderly British exit from the European Union all but certain.
Sterling reached a 19-month high versus the US dollar and its strongest levels against the Euro since shortly after the 2016 Brexit referendum.
Its jump – as much as 2.5 percent – versus the dollar put it on course for its biggest one-day gain in nearly three years, a remarkable gain for a currency that has become extremely volatile since the referendum.
Chastened by three-and-a-half years of political instability in Britain, investors seized on the expected Conservative landslide, believing it will enable Johnson to deliver Brexit on January 31.
That would end immediate fears about the United Kingdom crashing out of the EU.
"Just as Boris Johnson was desperately seeking his majority, this result would give the markets their ultimate wish: clarity," said Dean Turner, Economist at UBS Wealth Management.
Johnson's Conservatives were on course on Friday to win a comfortable majority of more than 70 seats in the 650-seat parliament in what could be the biggest Conservative national election win since Margaret Thatcher's 1987 triumph.
The pound rocketed 2.5 percent higher to $US1.3516 – its highest since May 2018 – in the immediate aftermath of the exit polls. It later settled at $US1.3472, up 2.3 per ent on the day.
Against the Euro, sterling rose as high as 82.80 pence, up more than two percent on the day, leaving the pound at levels last seen in July 2016, shortly after the Brexit referendum that hammered the currency.
The pound traded about 76 pence per Euro before the June 2016 Brexit vote.
"Markets will start focusing on the longer-term outlook of what a future trade relationship with the EU will look like and the pound's gains will be capped in the $US1.35-$US1.37 area," said Joel Kruger, a currency strategist at LMAX Exchange.
Johnson faces the daunting task of negotiating a trade agreement with the EU, possibly in just 11 months, while also negotiating another trade deal with US President Donald Trump.
Peter Kinsella, global Head of FX strategy at UBP said the pound's gains was a "relief rally" that the Labour Party under Jeremy Corbyn was unlikely to win and reflected the size of the majority the Conservatives looked set to claim.
FTSE 100 futures edged 0.2 percent higher. The exporter-heavy FTSE 100 often weakens when sterling rallies.
Corbyn's nationalisation plans have weighed on UK domestic stocks and energy and transport shares were tipped to climb when the stock exchange opens on Friday.
Yields on British government bonds are set to rise as investors buy into riskier assets such as stocks.
© AAP 2019