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Tories' election success sends pound to three-month high

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·Contributor
·3 min read
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The Tories won control of 63 local councils in the election, 13 more than they had before, while Labour lost eight it controlled previously. Photo: Lee Smith/Reuters
The Tories won control of 63 local councils in the election, 13 more than they had before, while Labour lost eight it controlled previously. Photo: Lee Smith/Reuters

The pound received a shot in the arm on Monday, surging back over $1.40, to its highest level since late February, after the Conservative party made significant gains across England in the most recent elections.

Sterling was up 0.87% against the dollar (GBPUSD=X) at $1.4112 in afternoon trade, benefitting from a weaker dollar, which tumbled on the back of a weak US employment report on Friday.

It was 0.86% ahead against the euro (GBPEUR=X) at €1.1603, recovering from sharp losses suffered last week.

The Tories won control of 63 local councils in the election, 13 more than they had before, while Labour lost eight it controlled previously.

Over the weekend, Labour's Sadiq Khan also won a second term as London's mayor, beating Conservative rival Shaun Bailey. He won 55.2% of the popular vote.

The pound rose against the dollar on Monday. Chart: Yahoo Finance UK
The pound rose against the dollar on Monday. Chart: Yahoo Finance UK

Sterling seemed to shake off concerns surrounding the Scottish National Party (SNP) pushing for a second referendum on Scottish independence after elections resulted in Nicola Sturgeon’s party, and the Greens, expanding their majority with a total of 72 seats, up three.

The SNP came just one seat short of a majority on its own, but the result still sets up an eventual confrontation with Westminster, which has already said that it was “not the time for a referendum.”

Sturgeon said her immediate focus was on guiding Scotland out of the current health crisis, however, it is believed a referendum agenda could be on the cards in the autumn.

“The results were positive for GBP,” said Marshall Gittler, head of investment research at BDSwiss Holding.

“First off, the fact that the SNP didn’t get an outright majority on its own is somewhat reassuring – they are the most pro-independence party so this suggests perhaps less-than-majority support for independence. It also will make it easier for PM Johnson to delay calls for a referendum.”

Watch: Nicola Sturgeon positive about SNP chances as she retains Scottish Parliament seat

Meanwhile, Richard Franulovich, head of foreign-exchange strategy at Westpac Banking Corporation told Bloomberg: “Calls for an independence referendum certainly won’t go away, but the FX market doesn’t seem to be reading the election outcome as heralding fresh immediate political risks for the pound.”

The currency was also boosted by the PM’s reopening plans for England. Over the weekend he confirmed that the country is set to move into its next stage of the roadmap out of lockdown.

This will see people able to dine and mix indoors in restaurants, pubs and cinemas from 17 May, as well as limited international travel.

Read more: European markets mixed after Boris Johnson confirms next stage of UK reopening plan

It comes as the rate of COVID-19 infections in the UK reaches its lowest level since September last year.

“The data reflects what we already knew; we are not going to let this virus beat us,” Johnson said in a statement.

“The road map remains on track, our successful vaccination program continues — more than two-thirds of adults in the UK have now had the first vaccine — and we can now look forward to unlocking cautiously but irreversibly.”

This week could be quite a positive week for sterling with Wednesday’s upcoming GDP figure likely to help the rally. 

Jeremy Thomson-Cook, chief economist at Equals Money, said: "1.5% may not sound like much for the past year but given the level of concerns there were around transition into Brexit and the COVID-19 restrictions, that number feels like a win."

Watch: What UK government COVID-19 support is available?