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Pound jumps most in two years


16 December 2019

The British pound has jumped its highest level since May 2018, briefly hitting the $1.35 mark against its US counterpart after British Prime Minister Boris Johnson crushed his rival in the UK election last night which makes it all but certain that Brexit will be carried out. The British currency had been rising steadily in recent weeks as traders bet that Johnson would win, but few expected he would pull through with such a large majority which means the Conservative leader can take the country out of the European Union while at the same time begin future trade negotiations with the EU without the need to rely on smaller parties to pass any legislation surrounding the Brexit process.

The news is a welcome relief for the UK economy which has suffered for more than 3 years on the back of Brexit uncertainty which has seen the British currency fall to multi year low’s and now the question is can the currency build on the gains made after the election result which should be clear when UK markets begin trading today.

"Both the Pound and FTSE 100 futures have rallied sharply on the exit poll news, as the market takes the figures as a positive development. If the result does turn out to be anything like this, then Boris Johnson has what he craves, a clear majority to push forward with his Brexit plans and reshape the country after years of austerity," says Chris Beauchamp, Chief Market Analyst at IG. 

"As the Pound leaps against the euro and the Dollar, the message from investors is clear, and should be reinforced when cash trading begins tomorrow – a possible end to years of delay and uncertainty, as Boris Johnson wins a handsome victory and cements his reputation as the man that ‘got Brexit done’." he added.

Others however are more skeptical about the euphoria surrounding Prime Minister Johnson’s win by noting that years of Brexit uncertainty has caused considerable pain the UK economy and now the focus will move to an economic agenda instead of a political one which may see the pound give up some of its gains.

"The level of the exchange rate now virtually disregards the damage which Brexit has so far caused to the economy, let alone the possibility of any incremental damage from the delivery of a Brexit with still uncertain prospects for a future trade deal," said Paul Meggyesi, head of global foreign exchange strategy at JP Morgan.

"It seems to us that the market is in danger of conflating the removal of political uncertainty with the reversal of the economic impact of Brexit," he wrote in a note to clients. he added.

The election also ends Labour Party leader Jeremy Corbyn's hopes of transforming the UK economy with a range of left-wing policies that scared the business community and may have contributed to the party’s distavorous result. Labour campaigned on the nationalization of major utilities, tax rises for companies and higher earners, and awarding 10% of companies' shares to their workers. Labour leader Jeremy Corbyn has vowed to resign as leader before the next election.


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