UK General Elections are over, and the British Pound is currently at its best level so far in the last 18 months. Can we expect further strength throughout 2020?
UK Pound jumped to its best level since March 2018 after the UK General Election on December 12. On the election day, UK pound traded at around $1.30 against US Dollar.
After the results for the exit polls came out- which had forecaste a clear majority, but the Conservative Party won by an even larger number - the Pound started trading gap-up gaining almost 250 points (2 and half cents). This is something which is very positive for the market especially for Pound as we go into 2020.
Back in March 2019, Theresa May broke the Brexit meeting deadline. There was a lot of optimism present in the market during that time. But when, instead of a final result stating whether there was a ‘Deal’ or ‘No deal’ with the European Union (EU), nothing happened, we saw that the Pound got hit really hard and the effects continued well into August 2019.
As the discussions start taking place, we can expect plenty of volatility for the currency pair which should run-up to the end of January 2020 at least. We have never seen Pound gap-up as high as 250 points against US Dollar before.
The major reason behind this, is of course the recent exit polls results which predicted a much bigger majority than expected for UK Conservative Party. In light of the same, the market is taking a view that Boris Johnson can get Brexit done and things would move ahead for the UK Government.
However, we know that things aren’t always as easy as they seem. The next Brexit deadline is in the end of January 2020 where either a deal will get done and be agreed upon or UK will leave the EU without a deal. Here are some important levels that one can should keep in mind before trading GBP/USD.
The most immediate high was the one we witnessed on election night when Pound plunged to a level just above $1.35. However, the downside where the pair hit $1.3045 was a low for the election day. We thus saw a range of about 450-500 points for the GBP- USD pair.
We got the last major voter participation in UK 2017 elections. Before that in June 2016, when we saw surprise vote to leave the EU, we saw that Pound declined sharply. The last major high was back in April 2018 at $1.44 and that was a level after which we witnessed continuous weakness against USD.
$1.20 has been tested in September 2019 and we have seen the currency pair bounce back from this level. Since September we have seen recovery for GBP which suggests that we could expect more strength through the rest of 2020.
The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.