LONDON (BLOOMBERG, REUTERS) - The pound rallied on Friday (Dec 13) to multi-year highs as Prime Minister Boris Johnson's Conservative Party won a decisive election victory that gives him the mandate to pull Britain out of the European Union next month.
Against the Singapore dollar, the British currency was up 1.4 per cent to $1.8158 as of 4pm on Friday, from the previous day's close of $1.7913, after earlier jumping as high $1.8293. This means the pound has strengthened 4.6 per cent against the Singapore currency to date this year.
The Singdollar also rose against the US dollar on Friday, with the greenback trading up 0.4 per cent at $1.3520 from its close of $1.3574 on Thursday.
The pound has been climbing in recent days as investors grew confident of a Conservative Party majority, but the scale of the victory suggested by the exit poll sparked a huge rally in the currency.
Sterling's dramatic gains saw it reach a 19-month high versus the US dollar and its strongest levels against the euro since shortly after the 2016 Brexit referendum.
The pound rocketed 2.5 per cent higher to US$1.3516 - its highest since May 2018 - in the immediate aftermath of the exit polls. It later settled at US$1.3472, up 2.3 per cent on the day.
Against the euro, the pound rose as high as 82.80 pence , up more than 2 per cent. The pound traded around 76 pence per euro before the June 2016 Brexit vote.
The pound could move towards US$1.37 as investors who have avoided UK assets in recent years return, said Peter Kinsella, global head of FX Strategy at UBP, although analysts cautioned that the wind behind the pound was largely sentiment-driven rather than structural.
With all but two seats declared, the Conservatives had won 363 of the 650 seats in the House of Commons, a gain of 47 seats, to Labour’s 203 seats, a drop of 59 districts. It is the biggest Conservative national election win since Margaret Thatcher's 1987 triumph.
"The numbers that people expected were 330, maybe 350, so to see 368 on the screen is incredible," said Mr Jordan Rochester, a currency strategist at Nomura International in London, speaking to Bloomberg Television.
Johnson’s majority gives him the power to get his own way on Brexit, especially if he needs extra time to negotiate with the EU. He has said he will start to push legislation through parliament before the end of the year to meet the current departure date of Jan 31.
Political uncertainty has dogged the performance of British assets and the pound since the referendum as investors fretted about the damage a departure from the EU would cause the UK economy.
Markets' enthusiasm for a Conservative victory under Johnson contrasts with the summer, when the pound slumped as investors worried Britain was headed for a disorderly and economically damaging no-deal Brexit under his leadership.
But Johnson subsequently secured a new agreement with Brussels and then called a snap election after accusing parliament of frustrating his plans.
He fought the election under the slogan of "Get Brexit Done", promising to end the deadlock.
The opposition Labour Party promised the public a second Brexit referendum.
But Brexit is far from over and the pound faces more volatility in 2020 as Johnson confronts the tough task of negotiating a future trade agreement with the EU, possibly in just 11 months.
"The biggest hope from an economic perspective will be clarity over Brexit in the near term, which should prompt a modest recovery in activity," said UBS Wealth economist DeanTurner.
"However, Brexit isn't yet really 'done', and attention will quickly turn to the future trade relationship. This phase looks set to be every bit as difficult as the last, with just over 12 months until the transition period ends on 31 December 2020."
WITH ADDITIONAL INFORMATION FROM THE STRAITS TIMES