Sterling and FTSE Soar on Conservative Victory

While many European indices are treading water ahead of the open, the FTSE is surging as the results of the UK general election pour out and suggest we could see an unlikely Conservative majority government.

The polls in the lead up to the election suggested it was going to be extremely tight, with the Conservatives and Labour each commanding around a third of the vote each, meaning more uncertainty as the parties enter negotiations in an effort to form a coalition majority.

It looks like none of that will be necessary following a strong showing from the Conservatives, who at the time of writing are on course to win 325 seats, one short of an overall majority. This is an effective majority though as Sinn Fein members have always in the past refrained from appearing in the House of Commons. This means a party only needs 324 seats to command an effective majority in the House of Commons.

It was a devastating night for the Liberal Democrat Party, which has been crushed in voting. The party has been punished for the part it played in the coalition with controversial support on policies such as tuition fees doing the party considerable damage. It’s a good thing for David Cameron that the Conservatives may have a majority as this could certainly act as a deterrent for any party considering becoming a junior coalition partner.

The pound has soared overnight since the initial exit polls suggested the Conservative victory was going to be much larger than previously anticipated. The Conservatives are seen as being more business friendly and more importantly, offer continuity in a country that last year experienced the fastest rate of growth in the G7.

Against the dollar, the pound is already at the highest level since the end of February and looks likely to close in on 2015 highs of 1.5552. If Conservatives do secure a majority, the pound could push on from here with 1.58 offering the next major resistance. This has previously been a key level of support and resistance while the 233-day SMA is likely to offer further resistance at this level.

GBPUSD daily

Focus will now gradually shift over to the US which will release labour market figures for April. The jobs report is widely seen as the most important economic indicator as it provides great insight into the strength of the economy. Following a poor showing last month in the non-farm payroll figures, it’s important that we see a strong rebound today, at least 250,000 new jobs, if a rate hike this year is going to remain a strong possibility.

The FTSE is expected to open 77 points higher, the CAC 3 points lower and the DAX 9 points lower.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.