Two-week high for cable as Conservatives extend election poll lead

Forex

GBP/USD has climbed 0.6% higher to break above $1.2985 today after a series of weekend election polls show that the Conservative Party has extended its lead over Labour.

Markets have moved to price in higher odds of a Conservative Party victory at the upcoming December General Election on the back of the latest polling data.

Data released over the weekend shows the Tories leading Labour by 15%-17%. A poll released this morning by Survation put the Conservatives at 42% and Labour at 28% – a 14-point lead.

Brexit party threat diminishes

Markets are also relieved to see that Nigel Farage’s Brexit Party is polling at just 5%. Even though Farage announced that Brexit party candidates would not stand in the 317 seats won by Conservative MPs during the 2017 election, there were still concerns that, by challenging Labour, the party would split the Brexit vote.

This risked diluting Tory support and potentially granting victory to Labour or Liberal Democrat candidates in hotly contested areas.

With support for the Brexit Party so low, markets are now betting that Boris Johnson will win enough support to form a majority government. Any Brexit Party candidates in Parliament would likely have advocated for a harder Brexit than the one outlined in Boris’s Withdrawal Agreement. In sufficient numbers, they could also have attracted the support of Tory rebels and pressed for more talks, or even a no deal exit.

UK on track for January 31st Brexit?

A solid majority for Boris Johnson means that it is likely the Prime Minister will be able to pass his Withdrawal Agreement bill by the new Brexit deadline of January 31st. This would finally put an end to the uncertainty that has gripped the UK economy for over three years and will allow politicians to focus once more on the domestic agenda.

Cable has twice tested and rejected the $1.30 handle in the past few weeks. There are still 24 days until the election, which is plenty of time as far as politics is concerned for everything to change. This, combined with the memory of the referendum and the 2017 election, could mean it takes more than just a few polls to fuel a rally above $1.30 ahead of December 12th.

Cable jumps to test $1.29 as Nigel hands Boris an early Christmas present

Forex

Markets have quickly priced in higher odds of a Conservative Party victory in the coming General Election after the Brexit Party today launched its own campaign.

Party leader Nigel Farage has backed away from his initial aim of fielding 600 candidates and will instead focus on Remainer strongholds; those held by Labour and the Liberal Democrats.

Farage has gone as far as to say that his party will not contest the 317 seats won by Conservative MPs during the 2017 election. He seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020.

Having knocked on $1.29, cable pared gains to trade around $1.2880. EURGBP dipped below 0.8560 before retracing to around 0.8570. The pound is stronger since a clear, decisive election win for the Conservatives will provide clarity on Brexit – anything else becomes messy.

GBP/USD 5min Chart, MARKETSX, 14.30 GMT, November 11th 2019

This is a huge boon for Boris Johnson. Conservatives had reason to fear the Brexit Party before, as it offered a place for Leave voters who felt betrayed by Johnson’s broken promise to get Brexit done by October 31st. The PM claimed he would rather be dead in a ditch than request an extension, but thanks to some legislative arm-twisting, he was forced to do so.

Everyone knew it would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.

Now Leavers in many constituencies have a much clearer choice; back the Tories or abandon Brexit.

Cable higher on plans to thwart no deal Brexit

Forex

Members of Parliament yesterday voted in favour of legislation that will make it harder for the next prime minister to push through a no deal exit from the European Union.

The move comes as we move closer to finding out whether Boris Johnson or Jeremy Hunt has won the Tory leadership contest and will therefore replace Theresa May as Prime Minister.

MPs fear hard Brexit under Boris

As one of the key figures in the Brexit campaign, Boris Johnson has been unsurprisingly vocal on his commitment to taking the UK out of the European Union. He has said that he would prefer to leave with a deal, but is prepared to make a clean break from the EU if no new deal is forthcoming. Officials on both sides have until October 31st to negotiate new changes to Theresa May’s Withdrawal Agreement.

MPs are concerned that Boris Johnson may even attempt to suspend Parliament in order to force through a no deal Brexit in October. Lawmakers have been tenacious so far in their efforts to avoid the UK leaving the European Union without a deal, although a series of indicative votes left it clear that there is no majority in Parliament for any of the Brexit options (including a second referendum).

As the odds on a victory for Johnson have increased, cable has come under greater pressure as markets price in larger odds of a hard Brexit scenario. On Tuesday cable slipped below the levels seen during the October 2017 flash crash, although news of the victory for new legislation yesterday pushed GBP/USD up 0.5% to trend above 1.2485.

Legislation recalls Parliament, even if suspended

The bill states that even if Parliament is suspended it must sit for a few days in September and October to consider issues in Northern Ireland. On top of this, new legislation requires ministers to make reports every fortnight on the progress made towards re-establishing the collapsed executive in Northern Ireland, and states the lawmakers must have the ability to debate and approve those reports.

It effectively calls for Parliament to be present to debate unrelated issues so that MPs coincidentally happened to be sitting just as the UK is due to leave the European Union.

It does not prevent Parliament from being suspended, but it is another spanner in the works for Boris Johnson, should he become Prime Minister and attempt to force through a no deal Brexit.

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