The pound is up against the US dollar (GBPUSD=X) on Wednesday after the latest poll by respected firm YouGov showed that Boris Johnson’s Conservative party is on the path to win a majority in the general election on 12 December.
YouGov took polling data from 100,000 panellists across the UK over the past seven days and used a technique known as multilevel regression and post-stratification (MRP) — a process that helped to correctly predict 93% of the results in the 2017 general election.
MRP is a statistical technique that uses data from various types of people with different characteristics, such as age and ethnicity, and then adapt results to take into account local factors for individual constituencies.
The survey suggested that the Tories will snap up 339 seats with Britain’s main opposition party Labour, led by Jeremy Corbyn, gaining 231. The Liberal Democrats, led by Jo Swinson, are set to secure just 15 while the Scottish National Party will get 41. But a smaller majority —or even a hung parliament— is within the margin of error.
While this would give the Conservative prime minister a majority of 28 in the House of Commons — this is significantly down from the previous 68 seats predicted in an earlier survey.
While the pound against the US dollar is still in the green — and notably above the key $1.31 level — investors remain cautious as there is just one day to go until Brits go to polling stations:
In the currency’s case, an outright Conservative win would be seen as a positive outcome for the currency as it means it’ll be more likely Johnson can get a Brexit deal through parliament and therefore avoid a hard Brexit.
“A Conservative win should see the pound boosted against major currencies including the US dollar, euro and Aussie dollar. A Conservative victory is likely to strengthen the pound considerably, as Brexit uncertainty would disappear provided that Boris Johnson gets enough of a majority to see his deal through Parliament,” said Hamish Muress, senior currency strategist at OFX.
“As a rule of thumb, greater political and economic clarity always has a positive impact on the pound’s value.
“That said, one potential difficulty for the pound is Johnson’s insistence that he can do a trade deal with the European Union before the transition period ends in December 2020. It took Canada seven years to finalise a trade deal with the EU, so this looks like wishful thinking. Any delays could hit the value of the pound.”
YouGov’s director of political and social research, Anthony Wells, said “like all predictions our model comes with some uncertainty, and the margin of error here could put the final number of Conservative seats from 311 to 367. This means that we absolutely cannot rule out the 2019 election producing a hung Parliament — nor can we rule out a larger Conservative majority.”
“More importantly, over the last fortnight we've seen the Conservative lead and the number of seats they are projected to win gradually fall. There are two days until polls close and time for voters to change their minds.”