The pound has risen to its highest level since May against both the dollar and euro, notching up a second day of strong gains as traders bank on a Conservative victory in the UK general election.
Against the dollar, sterling was up 0.8 per cent and approaching $1.31 on Wednesday, its highest level under prime minister Boris Johnson. The pound jumped 0.7 per cent against the euro, with £0.8460 needed to buy a unit of the single currency.
The currency has risen 1.2 per cent over the past two days, its biggest such gain since Boris Johnson’s Brexit deal was unveiled in mid-October.
Dean Turner, an economist at UBS Wealth Management, said: “As we write, the election is Boris Johnson’s to lose.”
Neil Jones, head of FX sales for financial institutions at Mizuho Bank, said the market was continuing to cut back on sterling short positions and hedges in anticipation of a Tory victory.
Markets view a healthy Tory majority as the best outcome for UK risk assets, at least in the short term, as it would lead to an orderly withdrawal from the EU at the end of January following years of uncertainty.
Still, several investors have warned the currency is now vulnerable to any tightening of the polls.
“It is still not a done deal,” said Rupert Thompson, head of research at Kingswood, a wealth manager.
Adam Seagrave, head of global sales trading at Saxo Markets, said traders would now “ponder which way the risks are skewed” ahead of election week.
“With a feeling among some that the easy money has been made and with sterling well above the August lows, the risk to the downside is substantially higher,” he said.
While Labour has begun to close the gap in opinion polls, the lead is still 10 percentage points with just over one week to go until polling day, according to the FT’s poll of polls.
Critically, a number of recent polls have shown that Jeremy Corbyn’s advance has stalled.
A YouGov poll released on Tuesday showed both the Tories and Labour down one point at 42 per cent and 33 per cent respectively. An earlier Kantar poll had the Conservatives increasing their lead by 1 percentage point to 12 points.
Given Mr Johnson’s pledge not to extend the EU free trade negotiations past the end of next year, many investors and analysts have warned that any ‘Johnson bounce’ could be short lived as Brexit risks return.
In a note to clients earlier this week, Lee Hardman, currency strategist at Japan’s MUFG, said: “We suspect more notable sustained gains will prove difficult.”
