Yahoo Finance Shares jump and pound stages biggest rally in almost three years on Tory victory
The pound staged its biggest rally in almost three years and shares surged after Boris Johnson’s Conservative party secured a decisive victory in the general election.
Sterling jumped more than 3 cents against the US dollar to $1.35, marking its highest level since May 2018 and its biggest rise since 2017. The pound also rallied strongly against the euro to €1.20, hitting a high not seen since shortly after the EU referendum.
The UK currency is expected to continue its upward march, with some analysts predicting the pound could hit $1.40.
“Many traders were caught off-guard by the size of the majority and this may push the pound even higher than previous predictions. We could see bullish traders now take it to $1.38 or maybe even as high as $1.40,” Nigel Green, chief executive of financial adviser deVere Group, said.
Investors welcomed the news, which signalled an end to the parliamentary gridlock over Brexit that has caused significant uncertainty for UK business and cast a shadow over the British economy.
UK retailers, housebuilders and banks moved sharply higher as investors piled into British stocks. Housebuilders such as Persimmon and Barratt, which had been hit by fears a disorderly Brexit would hurt demand for new homes, scored double-digit gains. Shares in utility firms also jumped, as the threat of nationalisation under a Corbyn government faded.
The FTSE 100 index rose 80 points, just over 1%, to 7,353 while gains were even sharper in the more domestically focused FTSE 250, which rocketed more than 5% – over 1,000-points – to a new all-time peak of 21,9101.
The Confederation of British Industry, the lobby group representing big businesses in the UK, said the result provided more certainty to companies that had been holding back investment in recent months.
“It certainly narrows the future options, and I think the fact that we now have a prime minister with a very strong mandate to govern is welcome. It’s a question of how it’s used and the real work I think starts now,” the CBI’s director general, Carolyn Fairbairn, said.
“It’s very, very important to rebuild business confidence, there are some very important things that need to happen quickly on that [including] reassurance around the no-deal Brexit options for next year. Businesses do not want to face another no-deal cliff-edge next year. They also want to see pro-enterprise policies come through very quickly now.”
The pound made most of its gains around 10pm on Thursday night, immediately after publication of the exit poll, which showed the Tories were on track for a majority of 86. The pound held its ground as election results rolled in throughout the night, confirming that Johnson’s party had won its largest majority since 1987.
Analysts said Johnson will now be in a better position to negotiate Brexit trade deals.
Neil Wilson, chief market analyst for Markets.com, said: “For the markets and for business this is the perfect result – a clear majority for the Tories, the Corbyn risk nullified entirely, a major reduction in uncertainty around Brexit and even a quick budget to inject the economy with some added impetus.
“The only doubts are around the next phase of Brexit – the future relationship – but with a large majority the government will be in a better place to negotiate and do what it needs to do.”
