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How the pound reacted to news of a landslide Labour victory
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The pound held steady against the US dollar after it was revealed the Work The party is on the way to a landslide victory.
The exit poll confirmed the expectations of investors, who are placing their hopes in a coming period of political stability.
Sterling remained relatively stable against the US dollar, remaining around 1.276, and against the euro, remaining at 1.18, after polling stations across the country closed at 10 p.m.
A large Labour majority was widely expected and priced into financial markets, leading to a subdued reaction in the pound.
Currency movements generally indicate the immediate reaction of financial markets to events that may have an impact on the political and economic scenario.
Chris Beauchamp, chief market analyst at trading platform IG, said: “The exit poll caused little volatility in currency markets as the expected landslide victory for Labour was properly forecast.
“The stability that would be provided by such a victory would mean investors could cross ‘UK political risk’ off their list of worries for now.”
Economists for Investec Economics said a large Labour majority had been “well-tracked” by a multitude of opinion polls since the election was called, so the pound had “failed to react virtually”.
“What will ultimately matter most to markets is what a Labour government chooses to do if and when it takes power,” Investec said.
Labour is set to have a prime minister in Number 10 for the first time since 2010.
Rob Wood, chief UK economist for Pantheon Macroeconomics, said: “If the final results roughly match the exit poll, Keir Starmer would have a large enough majority to chart a stable political course, which should unlock more business investment and attract more foreign investment.”
But he warned that higher government spending and borrowing, currently budgeted, could delay Bank of England policymakers on their path to cutting UK interest rates.
Meanwhile, experts said investors were likely to turn their attention to the second round of French elections, which have caused a bigger ripple in European financial markets in recent weeks.
The country will hold its general elections on Sunday, following its far-right National Rally secured the majority of votes in the first round of the surprising legislative elections.
“The recent recovery in the euro and equity markets suggests that investors are confident that the National Rally will be kept from power,” said Fawad Razaqzada, market analyst at Forex.com.