Pound Sterling: Labour Landslide Win Underpins Constructive Outlook Against Euro (and Maybe the Dollar)

The British Pound is unresponsive to news Labour has won a landslide General Election, but the outcome underpins a constructive outlook for the currency say analysts.

The 10 PM exit poll calculates Keir Starmer's Labour has won a majority of 170, with the Conservatives set to win the fewest seats since the party was founded in 1834.

Labour's strong win fulfils a base-case scenario for markets and is therefore fully costed by the UK currency. The Pound to Euro was flat at 1.18 in the minutes following the exit poll announcement and the Pound to Dollar unchanged at 1.2760.

"The political and policy chaos of recent years will be put to bed by the election. A new government is no guarantee of stability, but Keir Starmer gives something of an aura of being boring – which might not be a bad thing," says Chris Iggo, Chair of the AXA IM Investment Institute.

The Scottish National Party was the other big loser of the day, all but putting to bed any tail risk of another independence referendum.

"The exit poll has provoked little volatility in FX markets, as the expected Labour landslide is duly predicted. The stability that would be provided by such a win would mean investors can cross ‘UK political risk’ off their list of worries for the time being," says Chris Beauchamp, Chief Market Analyst at IG.

Analysts see the prospect of political stability in the UK and Labour's desire to create closer ties with the EU as supportive of the Pound over the long term.

This contrasts with the Euro, which faces France's election outcome on Sunday. Here, political and fiscal instability is likely to be a feature in the coming months. "Domestic politics in Europe are back in the limelight. We argue that they squarely favour the USD but also CHF and GBP relative to the EUR," says Themistoklis Fiotakis, an analyst at Barclays.

"The focus now shifts across the channel to France, where Sunday night’s election could have bigger ramifications," says Beauchamp.

The U.S. meanwhile has its own election in November, which pollsters say will likely be won by Donald Trump. For now, expectations of another Trump presidency are proving supportive of the Dollar.

However, there remains uncertainty as to how Trump's policies will impact markets, particularly if the Federal Reserve has begun an interest rate cutting cycle in September.

"The UK elections appear to be a non-event for UK markets given the dynamics of the opinion polls and this is one factor which will support GBP as an indicator of political stability relative to elsewhere," says Kamal Sharma, FX Strategist at Bank of America.