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Two-week high for cable as Conservatives extend election poll lead
GBP/USD has climbed 0.6% higher to break above $1.2985 today after a series of weekend election polls show that the Conservative Party has extended its lead over Labour.
Markets have moved to price in higher odds of a Conservative Party victory at the upcoming December General Election on the back of the latest polling data.
Data released over the weekend shows the Tories leading Labour by 15%-17%. A poll released this morning by Survation put the Conservatives at 42% and Labour at 28% – a 14-point lead.
Brexit party threat diminishes
Markets are also relieved to see that Nigel Farage’s Brexit Party is polling at just 5%. Even though Farage announced that Brexit party candidates would not stand in the 317 seats won by Conservative MPs during the 2017 election, there were still concerns that, by challenging Labour, the party would split the Brexit vote.
This risked diluting Tory support and potentially granting victory to Labour or Liberal Democrat candidates in hotly contested areas.
With support for the Brexit Party so low, markets are now betting that Boris Johnson will win enough support to form a majority government. Any Brexit Party candidates in Parliament would likely have advocated for a harder Brexit than the one outlined in Boris’s Withdrawal Agreement. In sufficient numbers, they could also have attracted the support of Tory rebels and pressed for more talks, or even a no deal exit.
UK on track for January 31st Brexit?
A solid majority for Boris Johnson means that it is likely the Prime Minister will be able to pass his Withdrawal Agreement bill by the new Brexit deadline of January 31st. This would finally put an end to the uncertainty that has gripped the UK economy for over three years and will allow politicians to focus once more on the domestic agenda.
Cable has twice tested and rejected the $1.30 handle in the past few weeks. There are still 24 days until the election, which is plenty of time as far as politics is concerned for everything to change. This, combined with the memory of the referendum and the 2017 election, could mean it takes more than just a few polls to fuel a rally above $1.30 ahead of December 12th.
Cable jumps to test $1.29 as Nigel hands Boris an early Christmas present
Markets have quickly priced in higher odds of a Conservative Party victory in the coming General Election after the Brexit Party today launched its own campaign.
Party leader Nigel Farage has backed away from his initial aim of fielding 600 candidates and will instead focus on Remainer strongholds; those held by Labour and the Liberal Democrats.
Farage has gone as far as to say that his party will not contest the 317 seats won by Conservative MPs during the 2017 election. He seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020.
Having knocked on $1.29, cable pared gains to trade around $1.2880. EURGBP dipped below 0.8560 before retracing to around 0.8570. The pound is stronger since a clear, decisive election win for the Conservatives will provide clarity on Brexit – anything else becomes messy.
This is a huge boon for Boris Johnson. Conservatives had reason to fear the Brexit Party before, as it offered a place for Leave voters who felt betrayed by Johnson’s broken promise to get Brexit done by October 31st. The PM claimed he would rather be dead in a ditch than request an extension, but thanks to some legislative arm-twisting, he was forced to do so.
Everyone knew it would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.
Now Leavers in many constituencies have a much clearer choice; back the Tories or abandon Brexit.
Brexit Day delayed as UK gears up for another General Election
Today was supposed to be Brexit Day. Instead the whole thing is on pause for another three months while the UK holds another General Election.
We’ll soon be entering the government’s quiet period, known as purdah, during which Downing Street won’t be announcing any major new policies that could influence the campaign.
Sterling is also facing a quiet period as well. The diminished threat of a no deal Brexit – for the time being – is providing solid support, but the upside is limited due to the political uncertainty.
Over the past few days cable has bounced between 1.28 and1.30, but there was a Fed meeting driving the dollar and the pound’s contribution to the volatility looked limited.
The deal on the table makes all the difference
We’ve been expecting an election for weeks now, and the upcoming poll is very different from a market perspective than it would have been if it had been held a couple of months earlier.
Boris Johnson managed to renegotiate Theresa May’s withdrawal agreement, replacing the backstop with something he claims is more palatable. The DUP don’t like it, however, and they’re not alone.
What’s important here is that if Boris gets to return to No.10 with a solid majority it’ll be his withdrawal agreement bill that he attempts to implement. This is a much better outcome for cable than the no deal Brexit he seemed intent on pursuing when he won the leadership contest.
Labour seems less market friendly no now deal off the table
For a while it looked like markets might have been relieved by the prospect of a Labour government due to its aversion to a no deal Brexit.
Back when Boris was talking about no deal, Labour was pretty tight-lipped about what exactly it wanted. Jeremy Corbyn has since come out in favour of a confirmatory referendum on a Brexit deal.
The political landscape has shifted away from a no deal Brexit. A Conservative majority may not be the downside risk it was once perceived to be. Labour still has the more market-friendly Brexit policy, but the Conservative alternate is not nearly as unpalatable as it once was. All parties in this election (other than the Brexit Party) are now offering to avoid a no deal exit.
This may free up traders to look a bit longer term and take into account Jeremy Corbyn’s radical plans for shaking up the system.
What are the risks of a hung Parliament?
The latest YouGov poll shows the Conservatives hold a 15-point lead over Labour at 36%, while Labour, at 21%, are just three points ahead of the Liberal Democrats. But it’s vital to remember that the Conservatives were polling at 44% the day before Theresa May called her disastrous 2017 election. Boris is by no means going to walk this one.
While another huge surge for Labour can’t be written off, perhaps the bigger threat comes from Nigel Farage’s Brexit Party. It could hoover up the votes of both Tory and Labour Leavers, weakening both parties. The other parties have given them the perfect campaign materials; Boris broke his own promise to ‘get Brexit done’ by October 31st, and Labour and the Lib Dems both want a second referendum.
Rather than looking at one established party dominating the others, this could be an election that sees the Brexit Party squeeze its way into Parliament, leaving no one with a majority. Not only would this promise many more months, if not years, of further chaos, but it would also put a no deal exit firmly back on the table, especially if hardcore Brexiters in the Tory party make alliances with Nigel Farage.
There really is a lot to play for, and the outcome will have huge implications for the UK’s future. But until we get more polling data and the candidates start doing things that are seen to dramatically alter their chances, the pound will be paralyzed by uncertainty.