By Amanda Cooper
London (Multibagger) - The pound held firm on Friday after Keir Starmer's centre-left Labour Party was expected to win a huge majority in the UK general election, affording investors some much-needed certainty after years of market volatility under the Conservatives.
As of 0430 GMT on Friday, many results were still to be announced from Thursday's vote, but Labour had won more than 326 of the 650 seats in parliament, with an exit poll suggesting it would capture about 410, and Conservative Prime Minister Rishi Sunak had conceded defeat.
Sterling firmed slightly after the release of the exit polls, and was last trading around $1.2772. The pound was broadly unchanged against the euro, which was at 84.76 pence. Futures linked to the stock index were up.
"The stability that would be provided by such a win would mean investors can cross 'UK political risk' off their list of worries for the time being," said Chris Beauchamp, chief market analyst at IG.
Sterling has edged up since Sunak called the election in late May, earlier than anticipated. It is the strongest-performing major currency against the dollar this year, with a gain of 1.2%.
On a trade-weighted basis, the pound is now back where it was in 2016, at the time of the Brexit vote, reflecting a belief among traders and investors that a period of intense market volatility, driven by political and economic tumult under the Conservatives, may be drawing to a close.
"It's a breath of fresh air to be running (UK) equities in a market where the election is seen as non-event," said Laura Foll, portfolio manager at Janus Henderson Investors.
"I'm hoping we're going back to an era where boring is good and politics treads lighter in people's lives," she said, adding: "It will be a more gradual lifting (of confidence)."
Echoing this sense of calm in the run-up to the election, the premium that investors demand for the extra risk of holding gilts rather than top-rated German 10-year bonds has remained stable this year around 160 basis points - a far cry from the 230 bps seen during a mini-budget crisis in 2022.
Futures on the FTSE 100 were 0.2% higher on Friday in Asia, as results from the UK election trickled in.
UK stocks have hit record highs this year, buoyed by a slow-growing but comparatively stable economy and decelerating inflation.
Analysis:
The UK general election results have brought stability to the market, with the pound strengthening against the dollar and euro. Investors can now breathe a sigh of relief as political risk in the UK seems to be diminishing. The Labour Party's victory has signaled a potential end to years of market volatility under the Conservatives, leading to record highs in UK stocks. However, challenges lie ahead as the new government will need to balance spending pledges with limited fiscal headroom. Investors are now turning their focus to the Bank of England's monetary policy decisions, which could impact market dynamics in the near future.