Sterling has jumped against the dollar and euro after Brexit Party leader Nigel Farage said he will not fight the Conservatives in the 317 seats it won in 2017, giving a big boost to Prime Minister Boris Johnson.
Traders were heartened by Farage’s announcement, viewing it as increasing the chances that Johnson will win the 12 December General Election and take Britain out of the EU with a deal, providing some certainty to the economy.
The pound rose rapidly shortly after midday when Farage made his announcement in Hartlepool. Most recently it stood 0.81 per cent higher at $1.288. It struck a six-month high against the euro, rising 0.66 per cent to €1.1669.
Farage attributed his change of heart – he had originally pledged to field 600 candidates – to a video by Johnson that last night said there would be no extension of the Brexit transition period. The PM also said he would negotiate a free-trade deal with no political alignment.
“The Brexit Party will not contest the 317 seats the Conservatives won at the last election,” Farage said. “But what we will do is concentrate our total effort into all of the seats that are held by the Labour Party, who have completely broken their manifesto in 2017.”
“Our action prevents a second referendum from happening,” he said. “We will also take on the rest of the Remainer parties.”
Most analysts view a Conservative election victory as the best scenario for the pound. Johnson’s Brexit deal includes a transition period during which the UK and the EU would try to thrash out a free-trade agreement.
It is hoped that this transition period would see business investment, which has suffered this year, pick up.
Michael Hewson, chief market analyst at CMC Markets, said a Tory victory would “in all likelihood” boost sterling “if they manage to push through the withdrawal agreement, and make speedy progress with respect to sorting out the future relationship”.
Ruth Lea of Arbuthnot Banking Group said she thought the worst outcome for the pound would be a Labour majority: “I would expect the markets to react very badly.”
She added that a hung parliament would also be detrimental. “It would depend on the biggest party, but whichever party, this is bad news for sterling,” she said.
(Image credit: Getty)