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Sterling inched higher on Friday in a muted market reaction to the Labour party securing a resounding and long-predicted UK general election victory, with investors hoping that leader Sir Keir Starmer will usher in a period of relative political and economic stability.
The pound was up 0.1 per cent against the dollar in early trading at $1.2771, while FTSE 100 futures were pointing 0.3 per higher. With most results declared, Labour had won 408 House of Commons seats out of 650. The Conservative party dropped to 116.
The moves come after investors had been gradually turning more positive on sterling in recent weeks, with the currency rising 0.4 per cent against the dollar and 0.5 per cent against the euro since Rishi Sunak called the election on May 22.
Analysts say the modest gains reflect a belief among investors that Labour’s victory draws a line under a relatively tumultuous period in markets under the Tories, including the huge fall in sterling after the 2016 vote to leave the EU and Liz Truss’s ill-fated “mini” Budget in 2022, which triggered turmoil in the gilts market.
“We’re getting a new government that will be very focused on financial stability — that has been their main selling point,” said Michael Metcalfe, head of macro strategy at State Street. “In response to that, institutional investors are no longer negative on sterling while their negative view on the euro remains entrenched.”
Cautious optimism in UK markets stands in contrast to France, where the Cac 40 stock index is down almost 4 per cent since President Emmanuel Macron’s decision on June 9 to call an election, while the yield premium on French debt over Germany surged to levels not seen since the Eurozone debt crisis last week before voters went to the polls.
