XE shares views on impact of UK 2019 election on currency markets
UK election day is upon us. Voters head to the polls for the third general election in less than five years. Today’s result will either make the way for Brexit under Prime Minister Boris Johnson or push Britain toward another referendum that could lead to a reversal of the 2016 Brexit vote. In this article, Alliott Group's Preferred Partner in Foreign Exchange, XE, provides perspectives on what the impact of the election could be on the currency markets.
Opinion polls point to a Conservative victory, but it is not a foregone conclusion by any means; this is where the risk lies for the Pound, which has been gaining ground since the end of November on the presumption of a Tory victory. However, it might be well-advised not to get overly optimistic toward a strengthening GBP – there is still the possibility of a hung parliament, which would see the Pound come off slightly.
Following the latest polls, the current Tory leads for all pollsters are: ICM 7pts, ComRes 8pts, BMG 9pts, Panelbase 9pts, YouGov 10pts, Deltapoll 11pts, MORI 12pts, Kantar 12pts, Survation 14pts, Opinium 15pts. YouGov's MRP model, predicts a solid majority win for the Conservative Party (359 seats versus 211 for Labour, 13 for LibDems and 43 for SNP. 326 seats are needed to secure a majority).
The pair is solidly trading at nine-month highs above 1.3220 on the UK election day. The recent volatility has seen GBP reporting a 10.5 percent gain on the low of 1.1958, printed in early September. The Conservatives' lead over Labour has narrowed in the last 48 hours. So far, that has failed to apply brakes on the GBP rally. The US dollar remains on the back foot after Jerome Powell, Chairman of the Federal Reserve, clarified that his personal bar for raising rates is high. He first wants to see significant and persistent inflation before hiking. Earlier, the Fed left rates unchanged as expected and signalled no changes in 2020. The US producer prices report is set to show moderate rises in November. The Core Consumer Price Index (Core CPI) came out at 2.3% as expected. President Donald Trump is set to meet his trade negotiators today to discuss the next steps ahead of the December 15 deadline to impose new tariffs on China.
EUR/USD is trading at six-week highs around 1.1150, buoyed by USD weakness and ahead of Christine Lagarde's first decision as president of the European Central Bank. Economists expect her to leave policies unchanged after the massive and controversial stimulus from her predecessor Mario Draghi. Recent economic figures have been encouraging but growth remains meagre. Lagarde is set to announce a policy review for the first time in a decade. While the ECB is unlikely to change its policy in its last event for 2019, Christine Lagarde's first decision may cause high volatility in EUR/USD. Upbeat figures and forecasts, may push the euro higher. In the case of a balanced approach, the general trend will probably remain unchanged. And a surprisingly dovish stance may send the euro down.
At the time of writing
GBP/USD – Trading above 1.32 at 1.3207
GBP/EUR- Trading above 1.18 at 1.1861
EUR/USD- Trading above 1.11 at 1.1134
The figures are based on the live mid-market rate, correct as of 08:30 GMT on 12/12//2019, and are provided for indicative purposes only. Live mid-market rates are not available to consumers and are for informational purposes only. The rates we quote for money transfer can be selected via the page on our website ‘Live Money Transfer rates’.
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