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GBP Votes Conservative

GBP Votes Conservative

GBP saw its sharpest climb vs EUR for nearly six years, rising over 2% to clear €1.3820 after exit polls showed the Tories would take at least 316 seats out of a possible 650.

The Pound also rallied by 1.75% against the US Dollar to break the 1.5500 level, a near 3 month high, before falling back a fraction.

At the time of writing, a Conservative majority looks to be almost certain with the Tories having won 317 seats and 18 still to be declared.

Despite the prospect of a referendum on Britain’s EU membership, the market clearly feels that a Tory victory (defined as a majority OR an easily formed 2 party coalition) will secure Britain’s financial future and set out a clear deficit reduction plan for the economy over the next five years.

Although financial markets have always favoured Conservative governments, the rally in the Pound is largely due to differences between the polls of the last few weeks and the exit poll released shortly after the ballots closed at 10pm last night. Previous polls indicated a very slim possibility of the Conservatives winning enough seats to form a centre-right two party coalition, let alone win the 323+ seats needed to secure a majority. As such the market was hoping for the next best thing (the market’s aggregated opinion from a financial viewpoint only): a Labour-SNP coalition.

The FX market continually ‘prices in’ probabilities of events, hence when there is a surprise the market moves significantly.

In context of the election there is little significant market data out today with the exception of US and Canadian employment data out at lunch time. Both sets of data may well offer support to their respective currencies and pare back some of the gains that GBP has made on each of them.

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