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Sterling hits 2-1/2 year highs vs euro as pound bulls take charge

Credit: REUTERS/BENOIT TESSIER

Sterling hit 2-1/2-year highs versus the euro on Thursday, on growing confidence that next week's election will give the Conservative Party the parliamentary majority it needs to deliver Brexit, ending near-term uncertainty.

By Dhara Ranasinghe

LONDON, Dec 5 (Reuters) - Sterling hit 2-1/2-year highs versus the euro on Thursday, on growing confidence that next week's election will give the Conservative Party the parliamentary majority it needs to deliver Brexit, ending near-term uncertainty.

Recent opinion polls suggest the ruling Conservatives will win an outright majority in the Dec. 12 election, removing some of the political uncertainty that has weighed on the currency for the last 3-1/2 years.

Prime Minister Boris Johnson called the vote to break an impasse in parliament over Brexit. A majority in parliament for his Conservative Party should allow him to get his withdrawal agreement passed by lawmakers and take Britain out of the EU by the Jan. 31 deadline.

"The broad trend in the polls is not really changing now and the Conservative lead on my poll of polls is about 11 percentage points, which is reasonably sufficient to get them a reasonably decent majority," said Adam Cole, chief currency strategist at RBC Capital Markets in London.

"With only a week to run to the election, if the trend in the polls stays flat, then sterling probably keeps going up."

Sterling rose 0.3% against the euro to 84.31 pence, its strongest level since May 2017. It has gained almost 10% from lows hit in August versus the common currency.

The pound also rose 0.3% to a as high as $1.3146 GBP=D3, taking its gains since October to more than 7%.

Analysts said the breaching of key technical levels on Wednesday around $1.30 and 85 pence per euro, had accelerated the pound's gains and encouraged traders to cover their short sterling positions.

UPWARD MOMENTUM

"Upward momentum for the pound was also reinforced by euro/sterling breaking below key technical support from the March lows at 84.73 (pence)," analysts at MUFG told clients.

"It has seen euro/sterling fall to its lowest level since May 2017. The positive technical developments have encouraged expectations that pound gains will extend further in the near-term."

The latest Reuters poll also suggested investor sentiment towards one of the most battered major currencies in recent years was turning.

Almost all foreign exchange strategists surveyed by Reuters were reasonably or very confident that Britain would leave the EU with a deal. The poll of nearly 60 foreign exchange strategists found sterling would rise $1.33 in six months and another 3% in a year at $1.35.

That compares with a $1.32 forecast made a month ago

In one sign of near-term caution, one-week implied volatility on sterling, a contract straddling the election, rose to its highest since late October GBP1WO=.

Sterling bulls taking chargehttps://tmsnrt.rs/33N9zqV

(Reporting by Dhara Ranasinghe; Editing by Gareth Jones)

((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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