Sterling reached a fresh seven-month high against the dollar Thursday, apparently propelled upward by a belief that the upcoming U.K. general election will result in a majority for Prime Minister Boris Johnson’s Conservative Party.
The pound has risen 1.5% against the greenback over the past three trading days and on Thursday morning reached a high of $1.3146 — the strongest level since early May. Sterling is now above its 200-week moving average against its U.S. counterpart.
Against the euro, the pound firmed to 84.31 pence, the most since May 2017.
Global Fixed Income Strategist at Societe Generale, Kit Juckes, said sterling was going up “to the sound of shorts capitulating” in a reference to the growing number of traders who were removing bets against the currency.
Commodity Futures Trading Commission data, released each Friday, reveals that net shorts against the pound have been steadily falling since early August.
Currency traders appear to believe that a Conservative Party government, with a commitment to enact Brexit, will prove less damaging to the U.K. economy than a Labour-led government with a pledge to tax and spend.
With just one week until the election, poll-tracking data suggests that the Conservative Party is maintaining a 10-percentage point advantage over Labour. At least one political analyst has estimated that any number above 6% should translate to a Conservative majority in the U.K. Parliament.
U.K Finance Minister Sajid Javid told BBC radio on Thursday that there was not “a single doubt in my mind” that an “ambitious, deep, comprehensive, free-trade agreement” could be agreed with the EU after Brexit within a matter of months.
On Wednesday, the former House of Commons Speaker John Bercow argued that it was “utter nonsense” that any new government could complete Brexit quickly.
In a note emailed to clients Thursday, Swiss bank UBS said that if the Conservatives win and a Brexit deal is completed in early 2020, then the pound should rise to $1.35 against the U.S. dollar.
It warned that gains beyond this level would likely be capped by potential “pitfalls” in subsequent negotiations between London and Brussels.
Author: David Reid