Market Overview

UK Elections Analysis: Three Reasons Why Johnson's Landslide Majority May Propel GBP/USD Far Higher

Share:
UK Elections Analysis: Three Reasons Why Johnson's Landslide Majority May Propel GBP/USD Far Higher
  • Massive Conservative majority may expedite passing Brexit and provide certainty. 
  • Johnson's personal mandate may allow him to ignore the demands of hard-Breixteers.
  • The people behind the campaign are likely to push for business-friendly policies.

"Do or die" was one of Prime Minister Boris Johnson's rallying cries related to Brexit – and now, after the UK elections he may implement that and perhaps everything he and his like-minded colleagues want.. And that may be pound-positive, beyond the 300+ pips that GBP/USD has already gained at the time of writing.

A Tory majority of around 86 – which is what exit polls projected and that seems realistic according to a big bulk of real results, can boost investors' confidence in three ways:

1) Getting Brexit Done quickly

Uncertainty and the endless dramas in parliament have weighed on sterling. Theresa May, Johnson's predecessor at Downing Street, failed to pass her Brexit accord three times – twice with opposition from the current PM. The previous parliament also gave a hard time to Johnson – by forcing him to ask for an extension to Article 50.

With a broad majority, the PM may ram through the deal he reached with the EU – perhaps before Christmas. While his version of Brexit is a hard one. it would provide the much-needed certainty.

2) Ignoring the Brexiteers in the next phase

Boris Johnson was the mayor of London for eight years and he enacted some liberal policies in an outward-looking city. Many political analysts ask: which side of the PM will we see? That depends on the target audience and also on his maneuvering room – and especially on what is good for himself.

He may want to keep trade flowing between the UK and the EU to prop up the economy and may opt for a softer Brexit – or at least prolong the transition period which is set to expire at the end of 2020. On the campaign trail, he vowed to get a deal done during 2020 and refused to prolong the implementation phase. However, he has already missed the "do or die" October deadline.

With a vast majority and elevated personal political credit, the PM may ignore hardliners and push for extending the transition and for a trade deal that would appease the markets. That would be another pound-positive factor. 

3) Beyond Brexit

Contrary to May's government, Johnson stuffed his cabinet with business-friendly ministers such as Foreign Secretary Dominic Raab and Chancellor of the Exchequer Sajid Javid. The latter has been in banking. Even if the PM reshuffles his cabinet, he will likely opt for like-minded people.

Investors would then expect deregulation, tax cuts, and other policies that would favor them – also supporting sterling.

Conclusion

Pound/dollar's run to 18-month highs at 1.35 may be only the beginning. Despite overbought conditions on many timeframes, sterling may extend its gains in the short and long terms.

GBP USD weekly chart post elections 2019

Image Sourced from Pixabay

 

Related Articles

View Comments and Join the Discussion!

Posted-In: Government News Regulations Eurozone Politics Forex Markets General

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com