Morning Commentary: An Emphatic Tory Victory

Foreign Exchange - Morning Commentary
An Emphatic Tory Victory
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
PM Boris Johnson and his Tory party won emphatically with a strong Parliamentary majority last night in the U.K. election. This will provide him with the mandate to pull the U.K. out of the EU next month and additional political bargaining power both at home and with the EU.

PM Johnson’s gamble to have a snap election was vindicated as the Tory party won their biggest majority since 1987 under Margaret Thatcher. Traditional Labor strongholds swung to the Tory side providing the large majority of victory for the Tory party resulting in opposition candidate, Jeremy Corbyn, stepping down as head of the Labor Party…this was the worst election result for the Labor Party since 1935.

The British pound (GBP) responded immediately as exit polling began to emerge around 2:00 pm yesterday afternoon and the GBP rose sharply by nearly 2.3% briefly piercing $1.3500 level. It has since corrected lower and has been consolidating near the $1.3350-1.3400 level for a net gain of 1.35% against the U.S. dollar. The stronger GBP has helped to pull almost all other European currencies higher along with many East bloc emerging market currencies.

The combination of the election result along with the White House endorsement of a Phase 1 trade deal yesterday provided a powerful incentive for Asian equities but a more muted response in Europe. U.S. equities are opening near unchanged. The market is awaiting a Chinese news conference near 7:00 am PST in response to the apparent conclusion of Phase 1. Asian currencies have appreciated sharply since yesterday’s White House announcement with the CNY and the South Korean won outperforming sharply.
  • Russia cut interest rates by 25 bps to 6.25% as expected. This is the fifth interest rate cut this year. Weaker growth and declining inflation have provided the cover for the central bank to keep cutting interest rates.
  • U.S. Retail Sales for November came in weaker than forecast at 0.2% against expectations of a gain of 0.5%. October was revised slightly higher from 0.3% to 0.4%. U.S. short and medium interest rates are lower on the session after soaring yesterday after the White House announcement on the trade deal.
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