Boris Johnson will feel like Christmas came early after winning a majority in last week’s election. The public headed to the polls for the first December vote since 1923.
As the exit poll came out and the result became clearer during the night, sterling made significant gains and rallied to 1.2080, the highest in three years. However, the rates corrected in the afternoon session falling below 1.20 again, with the pound having made steady gains since September and seeing a steady climb against the euro, the question investors are asking is how much more can the pound gain as we approach the New Year. Derek Hallpenny from MUFG suggested this ‘could be as good as it gets’.
Boris Johnson now aims to get ‘Brexit done’ having achieved what he sought after and seeing his Tory party inflict a heavy defeat on Labour. Will he stick to his promise and get his deal voted through by the end of January?
The feeling in the EU seems to be that they are now prepared to wave goodbye to the UK following the result. The Netherland’s PM, Mark Rutte, spoke at the EU summit saying, ‘certainly on the UK side they can speed up the process’.
How Boris uses his majority will decide the long-term future of sterling, with Brexit uncertainty over the last three years weighing on the UK market, getting Brexit done could see that change and investors buying UK assets once again.
One aspect of Brexit that could potentially see the pound reverse is the trade agreements the UK will seek to strike. If the trade agreements are seen to be bad for the economy then the gains made could be marginalised. Getting the deal voted through parliament could be seen as ‘phase one’ of Brexit with phase two being the long-term relationship, something Mr Johnson has promised ‘to be signed and delivered this time next year’.
With the US seeing their own presidential elections in November, 2020 could be a volatile year for the Greenback. How the elections take shape will define the fortunes of the USD in the long run, will we see another term for Donald Trump? That of course will depend on how his short term future looks. Impeachment talks have been gathering pace, on Friday two charges were approved by the US House Judiciary Committee moving the process to a full house vote this week. Trump is only the fourth PM in history to face impeachment, and Trump himself calling the process a ‘witch hunt’. He is accused of ‘using a foreign nation to help him politically’. GBP/USD closed Friday on 1.3334, having gone above 1.34 in the immediate aftermath of the election result.
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