Pound hits 7-month high on election optimism

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Britain's prime minister Boris Johnson visits a Christmas market in Salisbury, England, on 3 December. Photo: Hannah McKay/Reuters

Sterling rallied to its highest level against the dollar since May on Wednesday, passing the psychologically significant level of $1.30.

The pound rose 0.7% against the dollar (GBPUSD=X) to $1.3094 by mid-afternoon on Wednesday. Sterling was up 0.5% against the euro to €1.1793 at the same time, its highest level since May 2017.

The rise was spurred by hopes of a Conservative party victory in next week’s election. Michael Hewson, chief market analyst at trading platform CMC Markets, flagged a Kantar poll reported by The Sun that suggested Tory leader Boris Johnson had extended his lead over Labour rival Jeremy Corbyn to 12 points.

A separate Sky News/YouGov poll on Tuesday night gave the Tory party a 9-point lead over Labour, while the Britain Elects poll-of-polls currently points to 10-point lead for the Tories.

Dean Turner, an economist with UBS Wealth Management, said in a note to clients sent late on Tuesday: “The election is Boris Johnson's to lose.”

Marc-André Fongern, an EMEA foreign exchange analyst at MAF Global Forex, said: “The Labour party is running out of time to significantly narrow the gap with the Tories. Against this backdrop, the pound sterling is attracting investors' attention.”

READ MORE: What the general election could mean for the pound

A Conservative victory is seen as good news for the pound in the City as traders and analysts think it would lead to progress on Brexit and potentially end the UK economy’s underperformance.

As well as election optimism, Neil Wilson, chief market analyst at Markets.com, said dollar weakness was also boosting sterling.

“Dollar weakness since the end of November has been very marked and key to this pound move,” Wilson said in an email. “Bulls pushed the 1.30 door ajar yesterday, kicked it down this morning.”

The dollar came under pressure after US President Donald Trump signalled Tuesday that a trade deal with China could be delayed until after the US elections in November 2020.