Sterling surges as Conservatives on course for shock majority Government
08/May/2015 • Currency Updates•
The Pound traded within a narrow band during London trading on Thursday in the build up to the election results, although soared by 1.4% against the Dollar and a huge 2.6% versus the Euro following the announcement of shock General Election results.
Before results were announced at around 10pm last night, a BBC exit poll put David Cameron’s Conservatives at 316 seats, just short of a majority and 77 seats ahead of Labour. This large swing versus the recent poll of polls led to a spike in the Pound of around 1%.
Sterling rose sharply through the night against all other currencies as electoral results suggested David Cameron would be able to form a one-party Government, and it became unlikely that other parties in parliament would be able to unite against it. The Tories are now forecast to exceed expectations and gain around 329 seats at the final count, Labour just 233, while support for the Lib Dems has evaporated, with the party losing approximately 50 seats. Another shocking result came in Scotland, with the SNP gaining 56 of the 59 available seats.
With the vast majority of regional results declared at the time of writing, the Conservatives are not only on course to remain the largest party, but are astonishingly on track to gain a majority government, something that has not been on the radar over the past few weeks and months. David Cameron is all but certain to remain Prime Minister, and, although Labour and Lib Dem leaders Ed Miliband and Nick Clegg have retained their seats, their positions as party leaders are now in jeopardy.
The electoral result was a positive surprise for Sterling and the economy. Previously polls and pundits had been unanimous in predicting a difficult negotiating period after the election; the Tory’s majority removes this uncertainty. Further gains for the Pound are likely, buoyed by the dissipation of any fears that the elections would need to be repeated.
Limited economic announcements out in the UK today, with all Sterling volatility focusing on the election as results continue to filter through, and the final seat count will be announced at some point this afternoon.
The Euro declined against both Sterling and the Dollar on Thursday, down 2.6% versus the Pound and 1.25% against Greenback.
Just like the rally in the prior days, yesterday’s sell off appears to be mostly related to technical factors rather than any fundamental news. The continuing positive noises from the Greek negotiations did little to support the common currency. There were, however, a handful of second-tier data releases in the Eurozone during London trading. Factory orders in Germany recovered in March following two months of declines, a signal that Europe’s largest economy is poised to grow at a steady pace. Seasonal and inflation adjusted orders rose by 0.9% month on month, 1.9% higher on a year previous.
Today will also be quiet in terms of macroeconomic releases in the Eurozone. The Euro direction will likely be driven by the strength of the April payroll report out of the US.
Despite an appreciation in the Pound, the US Dollar managed to gain versus its major peers with the US Dollar index 0.8% higher.
Claims for jobless benefits in the US continue to hover close to a fifteen year low, boding well for today’s labour report. Initial jobless claims rose slightly last week, although remain consistent with an economy that is adding jobs at 265,000. This was well below the 280,000 forecast and takes the more representative four week moving average down to just 279,500, its lowest average since as far back as May 2000. Continuing claims were equally as impressive, falling by around 30,000 to 2.228 million for the week ending 24th April.
Today will see the crucial announcement of the monthly nonfarm payroll data in the US at 12.30pm GMT. Dollar volatility is to be expected, as always, with the announcement likely to have a significant influence on the Federal Reserve in relation to the timing of its first interest rate hike.
Rest of World
The Reserve Bank of Australia published its quarterly Monetary Policy Statement overnight. It clearly left the door open to further cuts beyond the one announced earlier this week. This weighed on the Australian Dollar which fell back below the 0.79 level against the US Dollar.