The pound is trading at 1.1868 against the euro, latest data from Bloomberg at the time of writing shows. Sterling has stayed steady as the UK votes in the General Election today – with the outcome certain to affect the pound, whatever it may be.
Speaking exclusively to Express.co.uk Michael Brown, Senior Market Analyst, Caxton Business said: “Sterling remained well-confined to its recent ranges yesterday, with market participants hesitant ahead of today’s general election.
“Looking to the election, investors will be primarily focused on this evening’s exit poll, which will give the first indication of how the country has voted, before the picture becomes clear throughout the night.
“For sterling, a Tory majority is expected to result in upside; while a hung Parliament or the unlikely event of a Labour majority would both pose stiff headwinds.”
Analysts have shared predictions on how each outcome could affect the pound.
A Tory Majority
Michael said: “Sterling is set to strengthen under such a scenario, though the extent of any rally will depend on the size of any Conservative majority.
“A sizeable majority should push sterling towards the mid $1.30s (and the low – €1.20s) as such a result would provide market participants with certainty over the Brexit path, with the Withdrawal Agreement near certain to be approved.
“A narrower Tory majority, say under 20 seats, would, despite the likely initial rally, likely exert pressure on sterling as 2020 progresses, with nerves likely to return over the potential of a no-deal departure at the end of the transition period in Dec 2020.”
Louis Bridger, General Manager for ICE in the UK & Ireland, said: “Boris Johnson has promised to pass his Brexit deal and bring in a Budget within 100 days if he is elected PM. If he is elected with a majority, this will likely fuel the pound’s recent gains by both increasing the possibility of the UK leaving the EU with a deal and by bringing some much-needed political certainty.
“It’s worth being mindful that these gains might be short-lived, though. A Conservative majority could mean the UK has more chance of crashing out without a trade deal at the end of 2020, which would likely have a very negative impact on GBP. Equally, if post-Brexit trade talks go on and on this will leave Britain with more uncertainty and probably prolonged ups and downs for sterling.”
A Labour Majority
Michael said: “While extremely unlikely, a Labour majority is likely to result in significant downside for the pound, with market participants’ focus likely to quickly switch towards Labour’s sweeping economic plans instead of focusing on Brexit.
“Despite Labour’s plans for a 2nd referendum potentially leading to a revocation of Article 50 in mid-2020, concerns over plans for nationalisation of industry, changes to share ownership and proposals for a 4-day working week are likely to pose a stiff headwind to sterling, dragging the pound to the low $1.20s and low €1.10s.”
Louis said: “While Labour’s proposed economic policies have been welcomed by some; they have been widely criticised as being potentially damaging for the UK economy. Because of this, there are fears that a Labour majority might cause a downturn for Sterling.
“On the other hand, any initial losses to the Pound after a Labour win could arguably be offset by the fact that it is pledging a People’s Vote with the potential to overturn Brexit.
“If Brexit was taken off the table, it’s likely we’d see huge gains for the Pound – since the referendum the markets have generally liked any news that keeps the UK linked closely to the EU and responded negatively when a no-deal Brexit has become more likely.”
A Hung Parliament
Michael said: “Should the Conservatives fail to win a majority, a hung Parliament is likely to result in a Labour-led minority government, propped up with support from a number of smaller, pro-remain parties to lock Boris Johnson out of Downing St.
“While the uncertainty caused during potential coalition negotiations may pose a headwind, the likely holding of a 2nd referendum and possibility of a remain vote, combined with the likely tempering of Labour’s economic plans by smaller parties, should provide solid support to sterling over 2020.”
Louis said: “If no party has a majority, the one with the most MPs can form a coalition – or partnership – with one or more other parties to gain control.
“If there’s a hung parliament with either the Tories or Labour propped up by the Liberal Democrats, this might result in gains for sterling.
“This is down to the fact that the Lib Dems would probably demand People’s Vote in return for lending their support (although Jo Swinson has not publicly warmed to the idea) and any possibility that the UK might remain in the EU could be good news for the pound.
“Another option is that the SNP would form a coalition government (unlikely with the Tories but could happen alongside Labour), which could potentially lead to further increased uncertainty.”
How has the pound fared in previous General Elections?
- Highest GBP/Euro rate since 2000 = 1.7596 in May 2000
- Lowest GBP/Euro rate since 2000 = 1.0366 in January 2009
- Highest GBP/Euro rate since Conservatives came to power in May 2010 = 1.4407 (19/7/2015)
- Lowest GBP/Euro rate since Conservatives came to power in May 2010 = 1.0719 (10/8/2019) – down 25.6 percent on the high four years earlier.
