Sterling surges to two-and-a-half-year high against euro as investors bet on outright Conservative election victory
Sterling surged to a two-and-a-half-year high against the euro and a seven-month high against the dollar as investors bet on an outright Conservative victory in the General Election.
With just a week to go until polling day, the pound rose above €1.18 and $1.31 on growing expectations that a hung parliament will be avoided and Boris Johnson will secure a majority.
Analysts said such a decisive outcome would remove some uncertainty that has weighed on the currency, and end the political deadlock over Brexit.
Fighting fit: There is growing expectations that a hung parliament will be avoided and Boris Johnson will secure a majority
While Brexit has put pressure on sterling, a Tory victory would pave the way for Johnson’s agreement with the EU to be passed by MPs, removing the threat of No Deal.
It would also dispel fears of economic catastrophe under Labour.
‘Sterling keeps on flying,’ said Neil Wilson, chief market analyst at Markets. ‘The market seems to be betting that the Tories have an unassailable lead.’
But Michael Brown, senior analyst at Caxton, added: ‘As we saw in 2017, polls can sharply narrow as we approach polling day. If a repeat situation pans out, seeing Labour gain ground and hung parliament territory approach, sterling will likely face stiff headwinds.’
The rally came amid warnings that the British economy is ‘staggering’ as political uncertainty hits business.
Research group IHS Markit said its index of activity in the crucial services sector, where scores below 50 show decline and above 50 show growth, fell from 50 in October to 49.3 in November.
Combined with subdued readings from the manufacturing and construction sectors this week, the report suggested the economy shrank in November.
Tim Moore, an economist at IHS Markit, said: ‘The UK economy is staggering through the final quarter of 2019.’