UK ELECTION: GBP holds steady as counting gets underway, Labour majority expected

Counting is underway as UK citizens headed to the polls on Thursday and exit polls are suggesting a clear Labour win, something that was highly expected. The lack of surprises – thus far – in the result has meant a quiet trade for UK assets as the counting takes place. The pound has maintained its bullish bias of the last few days as a “boring” result is taken as a good sign.

At the end of the day, it is not that long ago that political uncertainty caused the pound to crash and sent gilts soaring after new Prime Minister Liz Truss unveiled a host of unfunded tax cuts which saw investors panic. Flash forward two years and markets are equally as concerned about cost-cutting measures given the high level of debt in the UK economy. Thus, a Labour victory could be seen as a positive for UK assets – at least in the short term – as they could give markets some much-needed certainty that they will work to reduce the debt burden whilst trying to maintain growth in the economy. This is going to be very challenging, but all markets need is hope – for now.

 A Labour majority would also mean less friction when trying to get things approved in parliament, which is something investors are likely grateful for, especially after the expected gridlock in the French parliament following the first round of voting on Sunday.

The lack of political uncertainty would allow the pound to continue building on the gains seen over the past few months, potentially pushing GBP/USD back towards 1.30, a level not seen since July last year. How the Bank of England adapts its monetary policy over the coming months will also be crucial for the performance of UK assets. For now, as counting continues in the UK, GBP/USD is looking to break the short-term resistance at 1.2775 as it awaits official confirmation about the change in government after 14 years of Tory leadership.

GBP/USD daily chart