The Labour Party was widely expected to win a large majority and traders had already priced this in. This led to a muted reaction for the pound.
Friday, July 5, 2024 07:07, UK
The pound held steady against the US dollar after an exit poll showed the Labour Party on course for a landslide victory.
A respected exit poll by Ipsos, conducted for broadcasters including Sky News, was the first to estimate the size of the expected large majority in favour Sir Keir Starmer’s party.
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The value of the pound barely changed overnight against its main competitors, such as the dollar and the euro.
A big Work The gain was widely expected and had already been priced into the financial markets.
The pound rose against the US dollar that day to $1.27, but that was largely explained by the weakening of the dollar rather than an increase in support for the pound.
After the exit poll, the currency made up some ground against the euro, trading at €1.18.
Michael Metcalfe, head of macro strategy at State Street Global Markets, said: “Institutional investors have been very negative on the pound for a long time, but are actually going into this election quite neutral.
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That was partly, he said, because political risk has increased in countries such as France, where the second round of parliamentary elections are being held in three days, and in the United States, ahead of the presidential election in November.
“The UK has strangely ended up with a neutral position in the middle,” Metcalfe said. “Moreover, I don’t think there was any doubt at any point about the outcome (of the election).”
Both the FTSE 100 and the domestically focused FTSE 250 closed trading on Thursday up 0.9% and 0.3% respectively, in line with other European market performances.
After the exit poll was released, trading platform IG saw the FTSE 100 open Friday’s session up 0.4%. The implied figure will continue to change until the opening bell at 8am.
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Dan Coatsworth, investment analyst at AJ Bell, said of the outlook: “The UK stock market barely moved when the country last switched from a Conservative to a Labour government, and the same could happen.
“Investors have long priced in the impact of a Labour victory in the 2024 election, as polls throughout the six-week campaign predicted a landslide victory for the party.
“Markets have calmly accepted the prospect of a Labour government, given the party’s manifesto pledge not to raise taxes and what feels like a charm offensive towards the City.
“It takes a big surprise to cause any noticeable volatility in the markets.”
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The elections were called by Rishi Sunak on May 22nd.
The pound sterling is now only marginally stronger against the dollar, the world reserve currency, than it was then.
It has struggled to make progress recently due to the strong support from the dollar as a result of the US central bank postponing a rate cut.
Currency trading in London, along with bond and stock markets, provide a better gauge of reaction.
Labour was seen by the City under Jeremy Corbyn in 2019 as a party bad for the economy, but under Sir Keir the party has shifted more towards traditional Tory territory.
The Labour Party has pledged to focus on boosting economic growth, improving the country’s relationship with the EU and providing clear policies for business.
The party has capitalised on the frustrations of the previous parliament for investors, amid a series of its own goals, such as the aftermath of the Truss mini-budget.
But Rachel Reeves, who is set to become the country’s first female treasury secretary, will likely enjoy only a short honeymoon.
Tight government finances, largely the result of support for the COVID pandemic and the financing of energy bills following the Russian invasion of Ukraine, will limit Labour’s ability to spend, given the party has committed not to raise regular taxes.
Nevertheless, we can expect a flood of requests from investors and business circles for what is available, ahead of the first budget of the new parliament, expected in the autumn.