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The pound jumps as Boris Johnson heads for big win in UK election

Dec 13, 2019

London (UK) Dec 13: The pound shot up after an exit poll by British broadcasters predicted that Prime Minister Boris Johnson would sweep to victory in the UK election.
Sterling surged 2.3% to $1.346 at 8:10 p.m. ET, its highest level since May 2018. It also rose 1.8% against the euro.
The currency had been rising steadily in recent weeks as traders bet on a Johnson win. A solid majority in parliament would allow the Conservative leader to take the country out of the European Union by January 31 - removing some of the Brexit uncertainty that has hung over businesses and the economy for more than three years.
If the exit poll is confirmed, the election has also ended Labour Party leader Jeremy Corbyn's hopes of transforming the UK economy through a spree of left-wing policies that scared the business community. His platform called for the nationalization of major utilities, tax rises for companies and higher earners, and awarding 10% of companies' shares to their workers.
The poll predicts that Johnson will win 368 of 650 seats in parliament.
Investors believe a big majority would give Johnson more time to negotiate a new relationship with the European Union following Brexit. He had promised to rush through a trade deal by the end of 2020, when transitional Brexit arrangements expire, but could seek an extension of talks to avoid the abrupt imposition of major barriers between Britain and its largest export market.
"He will be free to ignore the views of the more extreme elements of the party," said Adam Cole, head of foreign exchange strategy at RBC Capital Markets. "An extension of the transition beyond the end of 2020 becomes that much more likely."
Kallum Pickering, senior economist at Berenberg, said a clear victory for Johnson should mean a boost for the UK economy, which had ground to a halt in recent months. GDP growth could rise to 1.8% in 2020 from 1.3% this year, before accelerating further to 2.1% in 2021, he said.
That's because results in line with the exit poll "should virtually guarantee" an orderly Brexit in January, while the risk of Corbyn implementing his proposed policies would vanish, Pickering wrote in a note to clients.
Additionally, the Conservatives plan to end the painful belt tightening they implemented following the global financial crisis and start spending on investment projects. The party has pledged to increase day-to-day spending on public services by £3 billion ($4 billion) above current plans by fiscal year 2023, and boost outlays for longer term projects by £8 billion ($10.5 billion), according to the nonpartisan Institute for Fiscal Studies.
Damage has been done
However, some analysts struck a note of caution about whether the pound could hold on to its gains. They pointed to continued uncertainty about the future relationship with the European Union, and the dampening effect on growth already caused by the Brexit vote back in 2016.
"The level of the exchange rate now virtually disregards the damage which Brexit has so far caused to the economy, let alone the possibility of any incremental damage from the delivery of a Brexit with still uncertain prospects for a future trade deal," said Paul Meggyesi, head of global foreign exchange strategy at JP Morgan.
"It seems to us that the market is in danger of conflating the removal of political uncertainty with the reversal of the economic impact of Brexit," he wrote in a note to clients.
Source: CNN News