The evening of Thursday, December 12, 2019, will once again be on the pages of British history and world politics. It will also be noted as one of the more important days for the British currency and financial markets. Yesterday at 23:00 Polish time the elections in Great Britain ended as a result of the stalemate related to the Brexit agreement. Now it seems that to the delight of investors this situation has been averted.
In yesterday's comment, we mentioned that the expected volatility for the GBP/USD pair reaches almost 300 pips. This is a huge range, given the overall decline in fluctuations in major currency pairs for months. When the first exit polls appeared in the evening, the pound's reaction pointed to a very optimistic scenario. The survey results showed the huge advantage of the Conservative Party and Prime Minister Boris Johnson, a supporter of Brexit from the very beginning. According to the exit poll, the Conservatives were to win 368 seats, and the Labor Party only 191, which was the worst result for this Party since 1924. The pound soared after the news.
The GBP/USD exchange rate increased by over 300 pips to the highest level since May 2018, exceeding at some point 1.3500. The pound in relation to the zloty has been at the highest level in three years. Nevertheless, this election result may also be favorable for the eurozone, taking the risk of a hard Brexit, which may have pushed the EUR/USD rate to the highest level since August.
This morning, detailed election results appeared. The Conservative Party gained 358 seats, and the Labor Party 203 seats. For conservatives, this is the best result since 1987, and for the Labor Party the worst since 1935. As a consequence of this failure, opposition leader Jeremy Corbyn announced his resignation.
The new balance of power in the British Parliament means that the final of uncertainty over Brexit will most likely take place in January 2020. Britain will leave the Union.
Today, however, a new thread has emerged in the US and China trade dispute. It was another positive signal for financial markets after the elections in Great Britain. Hence, US stock indices have set all-time records. According to unofficial information, China and the US have agreed to reduce certain tariffs and not to introduce further duties on December 15. China was also expected to agree to purchase US agricultural products in 2020 in the amount of USD 50 billion.
Will this unofficial information be confirmed by facts? The opening of markets after the weekend (on Sunday, December 15 is the announced date of introducing new tariffs) may differ from the levels we will see at today's closing of the session.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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