Image © Pound Sterling Live.
– Soft start to week for Sterling
– But losses expected to be limited
– Conservatives on course for majority in election
– Sterling to be contained by memories of 2017
– Conservatives launch ‘safe’ manifesto to avoid repeat of 2017
The British Pound starts the new week on a soft footing, but foreign exchange analysts expect the currency to ultimately remain supported against its major rivals as polling data confirms the Conservative Party remains on course to secure a majority in the December 12 General Election.
The Pound-to-Euro exchange rate is quoted at 1.1653 at the time of writing, a recovery from Friday’s low at 1.1620. The Pound-to-Dollar exchange rate is quoted at 1.2847, Friday’s low is at 1.2830.
Foreign exchange markets opened on Monday to weekend news that the first big election model seat projection predicts a Conservative majority of 48.
Datapraxis ran 270 000 YouGov interviews through their own predictive MRP model to get an accurate feel of how vote share might transfer into seat wins under the country’s first-past-the-post system.
The results show:
Conservatives: 349
Labour: 213
Liberal Democrats: 14
SNP: 49
Plaid Cymru: 5
Greens: 1
Speaker: 1
“At the mid-way point of this fateful election campaign, my firm Datapraxis is publishing what we believe to be the first really authoritative estimates of the state of the race,” says Paul Hilder, CEO of Datapraxis. “If this outcome comes to pass, it would be a chest-thumping victory for Johnson and the hard Brexiteer strategems of Dominic Cummings. They would have their mandate to “get Brexit done,” and be liberated to pursue their whims and fantasies in the new Parliament—perhaps even taking the UK out of Europe without a trade deal by the end of next year.”
“This is one poll that GBP markets will need to watch. 48 majority sufficient enough to be seen as a stable working government. But this could fall. Recall Theresa May was expected to get a 100+ majority, Anything below 15 and we’re back to counting MPs… all to play for GBP,” says Viraj Patel, a foreign exchange strategist with Arkera.
Datapraxis have based their modelling on the MRP model (Multilevel Regression and Post-stratification) used at YouGov, this was seen to be the most accurate attempt at polling by any of the major campaign
YouGov are expected to run their first MRP model this week, but the Datapraxis model should give a flavour of what is to come.
A poll-of-polls featured in The Telegraph this weekend meanwhile suggests the Conservatives on course for a 64 seat parliamentary majority, although others have suggested a lesser majority than that. That same poll reported by The Telegraph predicts a 55 seat loss for the opposition.
Image courtesy of The Telegraph
Foreign exchange markets are currently seeing a Conservative majority as a best-case outcome for Sterling, bidding the currency higher in anticipation of a swift resolution to Brexit should Boris Johnson fully control the House of Commons. The continuity they represent for the economy is also seen as attractive, particularly when contrasted to the huge tax-and-spend policies being proposed by the opposition Labour Party.
The implied odds of a Conservative majority now stands at 70% according to the Betfair Exchange, this up from implied odds of 45% two weeks ago before Nigel Farage said he would not be fielding candidates in Conservative held seats.
Despite increasing odds, It however now appears Sterling is unwilling to go much higher, and we believe markets are still wary the Conservative lead will slip as was the case in 2017, and the final result will be a great deal tighter.
“It’s worth noting that it was only after the manifesto launched in 2017 that polling started to truly tighten up,” says Jordan Rochester, a strategist at Nomura, the investment bank. “I would not recommend a fresh GBP long position here as it may only take a few polls showing a Labour party bounce or indeed another gaffe moment in UK politics from the Conservatives to put the market’s current base case in doubt and with it cause GBP’s recent grind higher to come undone.”
While there is certainly a great deal of caution being reflected by market sentiment towards Sterling, it is worth recalling that the trajectory of the polling in 2019 is very different to that of 2017.
In 2017 May’s Conservatives enjoyed a whopping lead over their Labour rivals at the start of the campaign, from here the lead declined in a steady trend. At the half way mark May’s polling numbers were in free fall.
Image courtesy of Wikipedia
The opposite appears to be the case thus far in 2019: the Conservative lead has been steadily growing, and if this trend continues markets might become more comfortable in bidding Sterling higher in anticipation of a solid Conservative win as per the current market dynamics regarding Sterling and the polls.
A key moment in the 2017 campaign came following the release of the Conservative manifesto that can only be described as an ‘omni shambles’, with policies such as the so-called dementia tax and a proposed removal of the triple-lock on pensions attracting negative publicity.
Subsequent reversals on unpopular policies cast doubts on May’s campaign message that she was the strong and stable candidate who would deliver Brexit, and the election ultimately resulted in the Conservatives winning the most seats, but not enough to command a majority.
Sunday saw Boris Johnson launch the Conservative manifesto, and it appears that the lessons of 2017 have been launched. The manifesto is devoid of any exciting new policies, instead the aim is to present something that does not detract from the campaign’s central message, and that is to “get Brexit done.”
The more pitfalls the Conservatives are able to avoid, the better their chance of securing a majority are.
Indeed, the Labour Party have done quite the opposite, by announcing a manifesto that certainly appears radical owing to promises to raise taxes and increase spending substantially.
Noting that the manifesto failed to deliver any meaningful upside traction, the party then announced an additional spending of £58BN on Sunday when they promised compensation to more than three million women who lost out on years of state pension payments when their retirement age was raised.
The fresh policy was not contained in the initial manifesto, and is therefore uncosted.
“The televised debate and the manifesto have not substantially improved the Labour Party’s credibility, i.e. Jeremy Corbyn gives the impression of desperately trying to attract voters, which, however, is likely to fail due to the lack of realism. The UK Pound remains remarkably unaffected by the parties’ respective election campaigns and might appreciate more significantly over the coming weeks as a solid majority for the Tories appears to be emerging,” says Marc-André Fongern, G10 analyst at MAF Global Forex.
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