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What will happen to the pound post-election?

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04/12/2019
Sterling has bounced back since its Brexit-driven plunge over the summer, which at one-point saw it trading at 1.07 against the euro.

On Wednesday it rallied to a seven-month high against both the euro and the dollar, hitting €1.18 and $1.31.

The stronger pound has been attributed to growing investor confidence in a Conservative victory at next week’s election.

However, a Tory win is far from a done deal.

We ask currency experts to predict what will happen to sterling in the event of either one of the main political parties winning – or if the outcome is a hung parliament.

Michael Brown, senior analyst at Caxton, says…

“Sterling is set to strengthen under a Tory majority, though the extent of any rally will depend on the size of any majority. A sizeable majority should push sterling towards the mid $1.30s (and 1.20ish for the Euro) as such a result would provide market participants with certainty over the Brexit path, with the Withdrawal Agreement near certain to be approved.

“A narrower majority, say under 20 seats, would, despite the likely initial rally, exert pressure on sterling as 2020 progresses, with nerves likely to return over the potential of a no-deal departure at the end of the transition period in December 2020.

“While extremely unlikely, a Labour majority is likely to result in significant downside for the pound, with market participants’ focus likely to quickly switch towards Labour’s sweeping economic plans instead of focusing on Brexit. Despite Labour’s plans for a second referendum potentially leading to a revocation of Article 50 in mid-2020, concerns over plans for nationalisation of industry, sweeping changes to share ownership and proposals for a 4-day working week are likely to pose a stiff headwind to sterling.

“Should the Conservatives fail to win a majority, a hung Parliament is likely to result in a Labour-led minority government, propped up with support from a number of smaller, pro-remain parties to lock Boris Johnson out of Downing St. While the uncertainty caused during potential coalition negotiations may pose a headwind, the likely holding of a second referendum and possibility of a remain vote, combined with the likely tempering of Labour’s sweeping economic plans by smaller parties, should provide solid support to sterling over 2020.”

Richard Ambrose, chief executive of money transfer firm Azimo, says….

“The value of the pound currently assumes a reasonably orderly and ‘soft’ Brexit.  Any change to that expected outcome will shake things up.

“A Conservative majority, which currently seems to be the most likely result of the election, could trigger a fall in sterling if the market does not believe that Boris Johnson will be able to deliver his promise to agree a deal on future relations with Europe by the end of 2020, which would result in a ‘no-deal’ exit.

“A hung parliament could cause a jump in the value of the pound as the market anticipates a second referendum with the potential to result in a Remain vote.

“A Labour majority could have the same effect, but it would probably be offset by concerns about the party’s stewardship of the UK economy, and so the pound would be likely to take a sharp fall on Friday morning.”

Rupert Thompson, head of research at wealth manager, Kingswood, says…

“The danger of an outright Labour victory may be slight but if it did transpire, it would likely cause a slump in the pound. So, if market hopes of a Conservative victory are vindicated, the pound will very likely strengthen further from $1.30 currently to maybe $1.35 or so. Even at $1.35, the pound would remain below the levels seen prior to the 2016 Brexit referendum.

“This would seem appropriate as, even with a Conservative victory, significant Brexit uncertainty will remain. While Johnson’s Brexit deal would almost certainly be ratified in short order if the Conservatives win, doubts will remain over whether the UK will be able to finalise a trade deal with the EU by the end of the transition period in December 2020. The risk of a no-deal exit may be much reduced but it has not been eliminated altogether.”

 

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