The pound has strengthened versus many of its major currency counterparts on the interbank market this week, such as the euro, US dollar and Australian dollar.
In part, this is because an anticipated survey by YouGov, called the ‘MRP’, has signalled that the Conservative Party will win a majority of MPs, at the UK’s general election on December 12th. For the financial markets, if a single political party wins next month’s vote, this may provide clarity about Brexit, as well as spur the UK’s economic growth.
However, looking to the next fortnight or so until polling day, the result isn’t guaranteed, and a number of surveys this week show the gap between the Tories and Labour shrinking, which may affect the pound.
Also, turning to next week, sterling’s value may be affected, by key economic data including IHS Markit’s updated surveys for the UK services and manufacturing sectors in November.
According to YouGov’s MRP this week, the Conservatives may win 359 seats at next month’s vote, next to Labour’s 211 seats. Overall, it’s thought that the Tories might win a majority of 68 MPs. If so, this would be enough to Prime Minister (PM) Boris Johnson to form a stable majority government, to pass his Brexit deal, and start negotiating the UK’s future trade deal with the EU.
The markets pay special attention to YouGov’s MRP poll, because it’s the only survey that accurately forecast 2017’s election result, when former PM Theresa May lost her majority in Parliament. The MRP works, by mapping out how many seats each party may win, based on people’s voting intentions around the UK. So this has benefited sterling this week.
However, besides YouGov’s MRP poll, it’s useful to note that the UK election result remains up-in-the-air. In particular, surveys this week by ICM, Kantar and Savanta ComRes all show that the gap between the two main parties is shrinking. Notably, according to ICM and Savanta ComRes, the Tories are now just 7% ahead, below the 10% threshold that traditionally grants the winning party a majority of MPs.
If no single party wins, then there may be a ‘hung’ Parliament, in which a government is formed, yet must rely on other parties to pass laws. Money managers fear that this may extend the UK’s Brexit limbo, running up to the new January 31st deadline. So we’ll see how the opinion polls shift, and how they affect sterling.
Meanwhile, turning to next week, there’s key UK economic data that might influence the exchange rate. These include IHS Markit’s updated PMIs (Purchasing Managers Indices) for UK services and manufacturing in November, which previously showed a decline in activity. Also, the British Retail Consortium (BRC) will publish its UK retail sales figures for this month too.
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