The Pound-Dollar Rate Capitulates as Election Endgame Looms amid Labour Catch-up
- Written by: James Skinner
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Image © Adobe Images
- GBP capitulates at March high as voters head to the polls.
- GBP taken Tory win to the bank already, hit by profit-taking.
- But polls and betting odds suggest Labour closing the gap.
- Markets favour Tory win but fear Labour economic agenda.
- Hung parliament also a horror show scenario for the GBP.
The Pound capitulated at its March 2019 highs during the morning session Thursday and was beating a swift retreat from a recovering Dollar as the clock struck noon and the 2019 general election endgame loomed over markets.
Investors appeared to baulk at Thursday’s suggestions the opposition Labour Party has partially closed the polling gap between it and the governing Conservatives, and by enough to put a Boris Johnson majority in doubt.
An Ipsos-Morri poll published in the Evening Standard showed the Tory lead shrinking to 9 points, with as many as one-in-four voters said to still be undecided. That came hard on the heels of a Comres poll suggesting that popular support for the Conservatives is now just 5% ahead of the Labour vote.
That could be enough to make the horror-show scenario of another hung parliament a viable outcome, some election pundits say.
Above: Pound-to-Dollar rate shown at 15-minute intervals.
"Polls suggest that a small Tory majority is the likeliest result, but that a hung parliament can't be ruled out. The exit poll has a very good record; since 2005, it has got the Tory seat total wrong by just 8 on average. Results won't flood in until 03:00 GMT, though 12 key marginal seats are set to declare at about 02:00," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
The level of undecideds and narrowing lead of the Tories may have hammered home to the market on Thursday just how tight the election really could be.
After all, 2019’s once-lofty estimates of the possible Tory majority have gone the same way as former Prime Minister Theresa May’s lead did heading into the 2017 ballot, which ultimately saw her preside over a hung parliament and increasingly divided party that wrought upon the country and economy an extended period of ‘dither and delay’ in the Brexit saga.
“All anyone is telling me is that there are queues of people voting early. That may indicate high turnout or may indicate a large number of people voting early because there are Christmas parties to go to this evening. The last time the UK voted in a December general election was in 1923 and resulted in the Conservatives losing their overall majority. I'm not sure if there are any lessons from that,” says Kit Juckes, chief FX strategist at Societe Generale.
Above: Pound-to-Dollar rate shown at daily intervals.
Markets favour a Conservative Party victory over the increasingly radical opposition Labour Party and the pollsters have led them believe that's exactly what they're going to get this Thursday. Exit polls are out from 22:00 and the result will be known in the early hours of Friday morning.
A part of the bias comes from investors' desire to negate the threat of a 'no deal' Brexit and see the economy move on from the current stage of negotiations, which has paralysed the Bank of England and some businesses, while the rest is centred on fears of the opposition and its economic agenda.
"GBP/USD has reached the January high at 1.3217 which so far capped. Minor support belowyesterday’s low at 1.3104 is offered by the 1.3013 October high. It guards the 1.2768 November low. Failure at 1.2768 would probably see a slide to the 200 day moving average at 1.2697 below which lies the 1.2582 September high," says Karen Jones, head of technical analysis at Commerzbank. "The short-term trend remains negative while trading below the five year downtrend line at 1.3446."
Above: Pound-to-Dollar rate shown at weekly intervals.
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