The pound has noticeably gained weight following opinion polls, which have shown growing expectations that the Conservative Party will significantly strengthen its position in the British Parliament following the election next week.
Investors are now looking positively at the British currency, since they are waiting for the completion of the Brexit process, which began more than three years ago and during this time has already managed to get tired of everything. The head of the Cabinet of the United Kingdom, Boris Johnson, promises to withdraw the country from the European Union on January 31, 2020 - market participants seem to believe him, but the pound is growing. Will the prime minister keep his promise? It's impossible to say for sure, because once he already missed when he promised to finish Brexit on October 30th.
It should be noted that the market reaction even looks somewhat ironic, since the pound fell to multi-year lows in August precisely on the news of Johnson's coming to power. Then GBP/USD traded near the lowest levels for more than thirty years. However, since then, the pound has risen in price by almost 10% against the US dollar, and Johnson's strengthening of positions is now perceived as good rather than bad news, and there is nothing surprising here. In less than five months, the prime minister managed to significantly bring the country closer to breaking the legislative deadlock.
According to some experts, the victory of Conservatives with Great Britain's subsequent exit from the EU is becoming preferable, as this will mean higher predictability in the economy and in the financial market.
"It seems that the pound could reach $1.35 at a fairly fast pace if the Conservatives win. In order to make further progress, we will need to ratify the Brexit deal, and then gain confidence that there will be a significant trading deal finalized with the EU," said Rupert Thompson, Head of Market Analysis, UK asset management company Kingswood Holding.
"The market's perceptions of the exact advantage the Conservatives will win in the election can be tracked by the pound. The stronger the pound, the higher the market's confidence in the ability of Conservatives to conduct a Brexit deal through Parliament," said Sean Darby, Jefferies strategist.
At the same time, analysts admit that the pound could fall if the Conservative Party does not win a landslide victory.
"The results of a recent YouGov poll have led many market participants to expect the pound to rise to $1.34 if the Tories win. The irony, however, is that the study follows a pattern very similar to the one we saw in 2017. Many of the polls turned out to be erroneous last time. I have a healthy dose of skepticism," said Jordan Rochester of Nomura.
According to BMO Capital Markets, one of the worst results of the December 12 general election in the UK will be a "suspended" Parliament for the pound, leading the GBP/USD pair to decline to 1.25.
"If GBP/USD trades at 1.30 at the time of the release of such news, we expect the pair to fall to at least 1.27, followed by further movement to 1.25 in one or two subsequent trading sessions" said BMO strategist Stephen Gallo.
The material has been provided by InstaForex Company - www.instaforex.com