Pound touches six-month high on Brexit optimism
The pound rallied to a six-month high against the euro as the Conservatives threw their weight behind the Prime Minister Boris Johnson’s Brexit plan, raising hopes for a smooth departure from the European Union.
Sterling strengthened versus all of its Group-of-10 peers after Johnson said every Conservative candidate has signed a pledge to vote for his Brexit deal if elected next month.
This, together with opinion polls showing the Tories in the lead and Jeremy Corbyn’s Labour Party struggling, boosted confidence the Conservatives could get a Brexit deal through Parliament in time for January 31 and end the UK’s political stalemate.
“Both culminate in the same outcome, which is that the withdrawal agreement has a higher chance of going through,” said Jane Foley, head of currency strategy at Rabobank.
The pound’s “performance in the last few weeks has been linked to this perception that if the withdrawal agreement gets through Parliament then Brexit is done and sterling goes up.”
Strategists see a Conservative majority as the best outcome for the December 12 vote, as it would mean Johnson can push through his Brexit plan and remove some of the uncertainty that has been a function of investing in the UK since the 2016 Brexit referendum.
Traders worry that an outright win by Labour could hurt the pound, given plans to ramp up spending, nationalise utilities and hike taxes for the rich that could open up the risk of capital flight.
Sterling gained as much as 0.5% versus the euro to 85.22 pence, the highest since May 6. It strengthened as much as 0.7% to $1.2985. The yield on UK 10-year government bonds was steady at 0.73%.
Traders are gaining confidence that Johnson will maintain his lead, averting any shock result, a gauge of expected large moves in the currency suggests.
Johnson took the decision to call the snap poll after lawmakers agreed to back his Brexit deal in principle but then fell short of giving it their full backing.
The pound has outperformed all other currencies in the world so far this quarter, gaining 5.4% versus the dollar and 3.8% against the euro.
