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Monthly Wrap: Pound soars to fresh multi-month highs on hopes of a Conservative majority

Philip McHugh December 11th 2019 - 2 minute read

Key takeaways:

–           Pound roars higher on election speculation.

–           UK economic data remains weak.

–           GBP Monthly lows: €1.16, $1.28, AU$1.86, NZ$1.98, C$1.69

–           GBP Monthly highs: €1.19, $1.32, AU$1.93, NZ$2.03, C$1.74
 
The pound has been catapulted higher over the past month, striking its best levels since March in response to rising bets that the Conservatives will win a convincing majority in the upcoming election.

GBP investors generally favour a Tory majority on hopes it will allow Boris Johnson to pass his EU withdrawal bill and break the Brexit deadlock in parliament.

As a result we’ve seen Sterling spike in response to recent opinion polls, which have almost universally predicted the Tories will come out on top on 12th December.

However, it hasn’t all be plain sailing for the pound over the last four week as UK economic data continues to underwhelm.

Of particular concern has been the UK’s latest PMI figures, which point to a possible contraction in GDP in the fourth quarter due to a slump in the all-important service sector.

The direction of Sterling over the coming month will be largely determined by the outcome of the upcoming election.

An outright majority for the Conservatives could help to propel the pound even higher, at least in the short-term, on hopes of greater Brexit clarity.

A hung parliament, meanwhile will likely prove negative for GBP exchange rates as it fuels fears of more Brexit and political uncertainty.

Also set to influence GBP exchange rates in December will be the Bank of England’s (BoE) final policy meeting of 2020.

The BoE is unlikely to spring a surprise rate cut on market this month, but we could still see the pound rattled by the bank’s forward guidance for 2020 amid speculation the bank may more clearly indicate plans for a rate cut in the first half of the year.
 

Written by
Philip McHugh

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