Pound touches highest since May in vote for Conservatives

Bloomberg

The pound reached the highest level in almost seven months as traders stepped up bets on a win for the Conservatives in next week’s election.
The currency pushed above $1.30 as polls show the ruling Tories holding their lead over Jeremy Corbyn’s left-wing Labour Party. Sterling also advanced against all major peers as US president Donald Trump’s visit to the UK unfolded comparatively smoothly, defying speculation his presence could undermine Prime Minister Boris Johnson.
Investors see a Conservative majority on December 12 as the most market-positive outcome, as it would allow Johnson to push his Brexit deal through parliament in time for next month’s deadline and move on to the next phase of talks with the European Union (EU). Trump’s visit had been seen as a risk for the Conservatives, who face questions over how the National Health Service would fare in any future trade deal with the US.
“With just over a week to go, sterling remains highly influenced by the polls day-to-day, but we may also be seeing some relief that Trump did not toss a grenade into the UK political system during his remarks,” said Ned Rumpeltin, European head of currency strategy at Toronto-Dominion Bank. “A break above the October high at $1.3013 may open the door for a test of $1.3185.”
The pound gained as much as 0.5% to $1.3063, the highest since May 8. It rallied 0.5% to 84.89 pence per euro. The currency has acted as a barometer of political risk throughout the Brexit process and has recovered about 9% against the dollar since hitting an almost three-year low in September, on hopes of an end to the uncertainty.
Johnson and Trump will both speak at the end of the NATO summit later Wednesday, at a delicate moment amid tensions among the international allies.
Royal Bank of Canada sees a 60% chance of a Conservative majority next week, leading to the “near certainty” of Brexit at the end of January on the terms of Johnson’s deal. Under a Labour-led coalition, meanwhile, “almost all roads lead to a second referendum, to which we would apply a 60/40 probability of a vote to remain,” Adam Cole, chief currency strategist, said in a note.
Pollsters say this election is a tough one with voters prone to switching parties as Brexit disrupts traditional allegiances. Surprise results in the Brexit vote and the last election also mean such surveys are seen as less reliable.
Data from the Bank of England (BOI) showed foreign investors selling UK government bonds in October at the fastest pace since February. That month saw Johnosn secure
a last-minute Brexit deal and extension to the deadline,
before Parliament voted to back his bid for a December election.