Pound lifts against the US dollar and Euro as market reacts to Labour landslide
A large Labour majority had been widely expected and priced into financial markets
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Your support makes all the difference.The pound has lifted against the US dollar and the euro after Labour secured a landslide victory in the General Election.
Sterling rose 0.1% to 1.278 US dollars – the highest level since mid June – and was up 0.01% at 1.180 euros.
The pound had largely held steady in overnight trading after exit polls signalled the extent of Labour’s lead, with a significant Labour majority already having been priced into financial markets.
Traders are expecting the FTSE 100 Index to edge higher when UK markets open at 8am.
The exit poll affirmed the expectations of traders pinning hopes on an upcoming period of political stability.
Sterling was relatively flat against the US dollar, remaining around 1.276 overnight, and against the euro, holding at 1.18, after polling stations across the country closed at 10pm.
A large Labour majority had been widely expected and priced into financial markets, leading to a muted reaction for the pound.
Currency movements typically indicate the immediate reaction from financial markets to events that could have an impact on the political and economic landscape.
Chris Beauchamp, chief market analyst at trading platform IG, said: “The exit poll has provoked little volatility in foreign exchange markets, as the expected Labour landslide is duly predicted.
“The stability that would be provided by such a win would mean investors can cross ‘UK political risk’ off their list of worries for the time being.”
Economists for Investec Economics said a large Labour majority was “well trailed” by a multitude of opinion polls since the election was called, hence the pound has “failed to react virtually at all”.
“What will matter more to markets, ultimately, is what a Labour government chooses to do if and when it takes office,” Investec said.
Labour is set to have a prime minister in No 10 for the first time since 2010.
Rob Wood, chief UK economist for Pantheon Macroeconomics, said: “If the final results approximately match the exit poll, Keir Starmer would have a large enough majority to plot a stable policy course, which should unlock more business investment and attract greater foreign investment.”
But he cautioned that higher government spending and borrowing, that is currently budgeted for, could slow down Bank of England policymakers in their path to cutting UK interest rates.
Meanwhile, experts said that traders are likely to shift their attention to the second round of the French elections, which has caused a bigger ripple in European financial markets in recent weeks.
The country is holding its general election on Sunday, after its far-right National Rally secured the most votes in the first round of the surprise legislative elections.
“The recent rebound in the euro and stock markets suggests that investors are confident the National Rally will be kept out of power,” said Fawad Razaqzada, a market analyst for Forex.com.