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View from the Desk - Election market update with Dealing Director Dan Harden

Sterling poised ahead of monumental election

It’s a busy day on our Dealing desk, but I wanted to write a quick update ahead of the election result.

It’s been a busy end to the year with the election dominating a lot of Pound movement. Even for markets, December’s usually a time when things are quietening down, and traders are getting ready for the festive season, which means we see less volatility—but this year that isn’t the case. Markets generally expect a Tory victory today, which has been offering Sterling some support in the last few months as many people just want to get Brexit done—something the Conservatives are promising. The Pound’s moves in the run-up to the election on the hope of a Tory win have been impressive, climbing around 8.0% against the US Dollar since October, and roughly 7.5% versus the Euro. GBP/EUR has been trading at 31-month highs, while GBP/USD has hit an eight-month pinnacle.

The last few days we’ve seen some more Sterling volatility after the gap in the polls appeared to close. The final YouGov poll showed the Tories had only a 28-seat majority in December, as opposed to the 68 in November. The question is, how much stock can we put in polls, given the Brexit referendum and US election mishaps?

Pound volatility is expected overnight, especially around 10pm when the initial exit poll is announced—this has been relatively accurate over the years so Pound movement could occur from this. However, any GBP rally could be limited, even with a Tory win, given the 2020 Brexit deadline and the Conservative’s unwillingness to extend. The threat of a no-deal Brexit could be a risk once again.

A hung parliament could leave the GBP exchange rate in limbo, and a Labour win, however unlikely given recent polls, could create Sterling losses in the short-term. Labour plans to re-open negotiations to get a new deal within three months, and then have a vote on the deal, with remain as an option.

Given all of the above, further Brexit uncertainty, and any continuation in weak UK economic data could put the BoE under pressure to cut interest rates to support the economy—something else that could create Sterling weakness. It’s possible there’s more opportunity for downside Sterling movement than upside.

-      Dan Harden, Dealing Director

We’re extending our opening hours on the 12th and 13th of December to give you more flexibility to move your funds when you need to. If you’d like to discuss how the election may impact your currency requirements, contact your Dealer or call our team on 020 3465 8202.