UPDATE: The Pound has soared against the G10 currencies after exit polls have shown a substantial victory for the Tories with a projected 368 seats vs Labour's 191 and Lib Dems just 13.
- The Pound to Euro exchange rate is +1.23% higher @ €1.20026 today
- The Pound to US Dollar exchange rate is +1.55% higher @ $1.34041 today
The Pound Sterling exchange rates have fallen against the euro and US dollar ahead of the exit poll results (released at 10:00pm).
"Domestically, the main event is obviously today’s General Election with the pound holding on to recent gains, while there has been a notable flow into other UK assets in the last couple of weeks" said analysts at Lloyds Bank on the morning of Thursday, December 12. "An exit poll will be published shortly after 10pm, which may cause some market volatility. The first set of results is expected from around 11pm, but declarations will likely pick up from around 2am (Friday). By tomorrow’s European open, we should know whether there is a Conservative majority or a hung parliament. The result may come down to a handful of marginal seats. Bookmakers attach a ~70% probability to a majority."
Live Updating Election Pound Reactions As-they-Happen.
Pound sterling exchange rates firm vs euro-dollar as election day gets underway.
The fate of Brexit, the direction of the UK and indeed, the direction of the British Pound all hang in the balance.
Exit polls are expected after 10pm.
Could British Pound be in a win/win situation?
Ahead of election, the Pound to Euro exchange rate is +0.08% higher at €1.18664.
The Pound to US Dollar exchange rate is +0.04% higher at $1.32054.
The UK goes to the polls on Thursday in an election that should decide Brexit and the direction Britain takes over the next 5 years. A Conservative majority still looks the most probable outcome, with the latest average of all polls showing a 10 point lead. This shows the lead has narrowed as the Liberal Democrat support has migrated to Labour, but it should be enough to hand Boris Johnson the majority he needs to ‘get Brexit done’.
Sterling longs have had a nervous week but most of the recent gains have held and Tuesday’s dip has been retaken. Indeed GBPUSD is trading at new 2019 highs above 1.32, but this is due to USD weakness in the wake of Wednesday’s Fed meeting. EURGBP is making higher lows just above 0.84 and Monday’s low of 0.8397.
Price action is likely to be slow until later on Thursday when there will be some indications of voting patterns. By midnight tonight the result will be fairly clear and Sterling will be pricing in the outcome. Here’s The Guardian to explain the process,
“When the polling stations close at 10pm GMT (9am Friday AEDT), the television stations will release an exit poll. These have become quite accurate predictors of the final outcome and in 2017 delivered a shock by showing that Theresa May was going to lose her majority'
The first real results could be in as early as 11pm GMT (10am AEDT) with the final ones in within 24 hours.
A party needs 326 seats for a majority in the Commons without relying on support from smaller parties. If Boris Johnson or Jeremy Corbyn get to this magic number they can go to the Queen and tell her they are forming a government.”
The consensus is that the Pound can continue to strengthen on a decent Conservative majority and GBPUSD could reach 1.35. If the Conservatives fail and there is a hung parliament, Sterling will plunge and GBPUSD could re-visit 1.28 as uncertainty will continue.
However, as Danske Bank points out, if Labour manage to take power and force a second referendum on Brexit (which will likely stop Brexit) then it will be an eventual positive for GBP.
“In case of a Conservative majority, we think PM Boris Johnson can get his Brexit deal through Parliament before Christmas, such that the UK leaves the EU on 31 January 2020. In case the opposition wins (Labour+LibDems+SNP+some smaller parties), we expect the parties to agree on a second EU referendum, where polls show "remain" is slightly ahead. Both scenarios are likely to be interpreted positively by investors.”
Perhaps a rare win/win scenario for GBP longs in the medium-term but the shorter-term volatility could be hard to navigate.
Central Banks in Action
Wednesday evening saw the FOMC meeting deliver a rate hold much as expected. Perhaps the only surprise came at just how much agreement there is for a continued pause.
“Looking at the 'dots', 13 out of 17 FOMC members expect the target range to remain unchanged throughout 2020, while four expect one hike. It is striking that no one signals a cut, which is at odds with market pricing. Our base case remains that the Fed will deliver a fourth cut some time during the spring, which is, however, not a high conviction call,” noted Danske Bank on Thursday.
The US dollar lost more ground in the wake of the meeting, something that will please the Fed and President Trump.
Thursday will bring Christine Lagarde’s first ECB meeting as President. With most of the expected ‘action’ (i.e QE) already introduced by her predecessor Draghi before his departure, there is little to do for now and no market moving events are expected.