General election 2019: Pound hits 19-month dollar high

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The pound surged against the dollar as the Conservative Party won an overall majority in the UK general election.

Sterling gained 2.1% to $1.34 – its highest level since May last year – on hopes that a big majority would remove uncertainty over Brexit.

The pound also jumped to a three-and-a-half-year high against the euro.

Prime Minister Boris Johnson said the result meant that the Conservative government “has been given a powerful new mandate, to get Brexit done”.

Mr Johnson, who held onto his Uxbridge seat with 25,351 votes, has pledged to take the UK out of the European Union by 31 January.

The BBC’s economics editor, Faisal Islam, said a big win for the Conservatives pushed leaving the EU without a deal into the distance and the financial markets were breathing a sigh of relief.

“The most disruptive form of no deal has been taken off the table. The market reaction is a reflection not just of the result, but of the fact that [a big majority] gives the prime minister room for manoeuvre.”

The financial bookies had already installed Boris Johnson as the favourite, but did not expect him to romp home by such a distance.

The pound moved sharply higher as soon as the exit poll was published and went on to post one of its biggest one-day gains against the dollar in nearly three years.

Ian Tew, sterling trader at Barclays, told the BBC that Johnson’s decisive victory had “removed a layer of uncertainty”.

That is well put – there are many other layers for the markets to now focus on. The challenge of completing a trade deal with the EU by this time next year is formidable and traders on the Barclays floor are already muttering about the prospect of a new Scottish independence referendum.

Markets have given the prospect of a government with a functioning majority a round of applause, but at time of writing, the value of the pound is already beginning to retreat from the highs it hit overnight.

Ian Tew, a sterling trader at Barclays, said: “The market has interpreted this result as clarity.

“It takes some of the uncertainty away, though the focus will now be on the next stage of the Brexit talks and, further down the line, a potential Scottish referendum. But the clarity enables some investor confidence.

“We’ve seen a lot of volatile moves in sterling over last few years but it’s holding onto those gains for now”.

Pound v Dollar

Pound v Euro

Guy Foster, head of research at wealth manager Brewin Dolphin, said that “the potential for a smooth Brexit removes some of the downside risk for the UK economy”.

“This should be positive for both business and consumer confidence, at least in the short term, with a gradual acceleration in GDP growth and confidence.

“However, a lot can change over the coming months as the finer detail of the UK’s future trade relationship with the EU is negotiated.

“This is still, after all, just the beginning of the exit process. Even with the passing of the withdrawal agreement, the UK could still leave the EU without a deal at the end of 2020 if trade negotiations don’t proceed successfully.”