Pound falls following three-day rally

06 Dec 2019

Pound falling Sterling fell on Friday following three days of gains that took the pound to a two and a half-year high versus the euro, and a seven-month high against the dollar, on the prospect of the Conservatives winning the upcoming election.

The pound is heading for its best week since the middle of October, rising 1.5% against the dollar and close to 1% to the euro as a number of opinion polls show a comfortable majority for the Tories, Reuters reports.

However, on Friday, sterling declined 0.2% to $1.3138, just missing a $1.3166 high recorded on Thursday. Against the euro the pound traded at 84.58 pence, having hit 84.31 pence earlier this week.

Nordea analyst Morten Lund said: “It’s a small move and no fundamental change (in terms of what opinion polls show).

“From a risk-reward perspective most people are too optimistic but if you look at option markets you can see some people positioning for sterling weakness,” Lund added.

According to David Katimbo-Mugwanya, a fund manager at EdenTree Investment Management, confidence has been boosted of a decisive election result, and the subsequent passing of a Brexit departure deal in parliament would bolster the economy.

He stated: “I would expect some sort of bounce (in the UK economy). You have already seen some of that in the currency.”

Commenting on the recent polls, chief currency strategist at RBC Capital Markets, Adam Cole noted: “The broad trend in the polls is not really changing now and the Conservative lead on my poll of polls is about 11 percentage points, which is reasonably sufficient to get them a reasonably decent majority.

“With only a week to run to the election, if the trend in the polls stays flat, then sterling probably keeps going up.”

That said, should the Conservatives win a majority in next Friday’s election, a number of analysts are of the opinion that any additional rise in sterling would be somewhat limited.

Evidence of a weakening UK economy would weigh on sterling, according to analysts, who referred to a new jobs market poll that revealed the slowest rate of rising vacancies in a decade.

Leaders of the Conservative and Labour parties are going head-to-head in a televised debate on Friday.


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