The British pound has dropped against the US dollar after the latest YouGov poll predicted 20 fewer seats for the Conservatives.

As polls open on Thursday morning, it is anyone’s guess what the results of the general election will be as the Conservatives could be winning with a majority or facing the risk of a hung parliament. 

After the release on Tuesday night of the YouGov MRP poll, a detailed constituency-by-constituency poll which predicted a reduced majority for Boris Johnson, the election is expected to be a very close-fought one.

As the Prime Minister himself stated, “This is a very close-fought election, and we need every vote. The only mathematical alternative to a working majority for a Conservative government is the real, real risk of another hung parliament. That’s another five years of confusion, chaos, dither and delay. We cannot go down that route.”

The prospect of a hung parliament could threaten PM Boris Johnson’s ability to deliver Brexit on time and will continue to put more pressure on the GBP.

YouGov poll

The YouGov poll puts the Conservatives on 43% and Labour on 34%, after gaining two points, without ruling out the possibility of a hung parliament. The survey was based on more than 100,000 interviews conducted the last six days. The result shows Johnson’s notional majority being cut from 68 to 28, with his party’s seat count falling to 339 and Labour’s improving to 231.

The YouGov poll used the MRP method (modelling technique called multilevel regression and post-stratification), which bases a result for each constituency by creating a profile for how different demographic groups might vote.

The gains for Labour come from London’s Putney and Chipping Barnet, while the Conservatives’ gains come from Labour in the Midlands and north of England.

Time is limited

According to Reuters, “Sterling’s rally will be limited even if U.K. Prime Minister Boris Johnson wins a parliamentary majority in the general election and finds a way to pass the withdrawal bill by Jan. 31. That’s because the clock is ticking on a trade agreement in a transition period that runs out at the end of 2020. Any longer-term economic and Brexit uncertainty can increase the chance of a Bank of England rate cut next year, which would weigh on the currency and prop up gilts.”

In the case of a Conservative Majority, the pound will continue to be under pressure due to the threat of a no-deal Brexit and the risk of reaching a trade agreement by next year. The prospect a 2020 rate cut is also real, especially with a hard Brexit and the ensuing weak economic conditions, as Market Live strategists predict.

The possibility of a hung parliament will complicate things even further, spread uncertainty and hurt the pound, while making the passing of Johnson’s deal very difficult.

Another outcome, according to Reuters, is Labour forming a government, requesting a Brexit extension and holding a second referendum, which is seen as the worst-case scenario, with the pound falling significantly.

With the release of the latest GDP figures showing that the economy has stagnated due to Brexit uncertainty, failing to grow during the August-October period, economists have criticised the ongoing Brexit chaos and the global economic slowdown. So, while the elections have temporarily boosted the pound on hopes of a Conservative majority, the long-term economic prospects appear to be grim for the economy.

Whether the pound lifts or continues to fluctuate due to Brexit uncertainty, you have the choice of taking control of your finances by contacting a foreign exchange specialist such as Universal Partners FX. UPFX can protect your money from currency volatility, providing you with the certainty you need while minimising the risk when transferring your funds overseas. Get in touch with their currency exchange brokers to find out how much you can save on your international money transfers.

The British Pound rose against the Euro on Monday after BMG and Survation polls confirmed expectations of a Tory win in the general elections on 12 December. Both polls showed that the Conservative Party was leading the polls, with Labour suffering losses.

The Independent’s BMG poll showed the Conservatives gaining points to 41% and Labour losing 1 point to 32%. ITV's Good Morning Britain Survation poll showed the Conservatives gaining 2 points to 45% and Labour losing 2 points to 31%. Leading by 7 points means that the Tories will win with a majority, while a 14-point lead shows a clear-cut win.

With a Tory majority clearly confirmed by the polls, and fears of a hung parliament receding, the pound rose to a 31-month high against the euro, while against the dollar, the pound was a little bit less than last week’s 7-month highs.

The Survation poll was conducted between 5 and 7 December by telephone with 1,012 respondents. The positive news for the pound is also that Labour is losing rather than gaining points, showing that there is a healthy gap between the two parties and that that gap would be impossible to close in the next three days. Richard Pace, options analyst with Thomson Reuters, said that "Polls continue to show the Conservatives on course for a majority government after Thursday's UK election, which would end the Brexit uncertainty and prove the most favourable outcome for GBP." It appears that a Tory majority is almost now certain, but many traders are waiting to see as the high number of undecided voters could affect the election outcome.

Undecided voters

According to Elsa Lignos of Royal Bank of Canada, undecided voters could really change the election outcome. As she said: “There are two main possible outcomes for this week’s election which will shape the UK for possibly decades to come: (1) A Conservative majority government (exit from the EU at end-Jan on terms of Withdrawal Agreement and then still TBD, the free trade agreement that has to be negotiated by the end of the transition period); (2) A hung Parliament that would see a further delay to the UK’s EU exit and potentially a second referendum. Bookies odds show a Tory majority as a near certainty, in line with the steady gap in most (but not all) opinion polls. But there is a historically high number of undecided voters which could affect as many as 80 marginal seats. We will be neutral GBP going into Thursday and look to trade the outcome.”

Final push

The Telegraph reported that Boris Johnson will visit on Monday Leave-supporting constituencies in England and Wales to urge them to reject Jeremy Corbyn’s “great betrayal” of Brexit and Labour politicians “who sneer at your values and ignore your votes.” He is expected to tell voters in Sunderland later on Monday that "The Labour party has let you down," while Parliament has "bent every rule and broken every convention as it has delayed, diluted and denied Brexit.” Johnson’s message will be that a vote for his party is a vote to "get Brexit done and unleash Britain's potential.”

On the other hand, Labour, will turn towards the economy by highlighting their radical programme of nationalising utilities and the Royal Mail, as well as investing in public services, and creating new rules for businesses and homeowners in the first 100 days of a Corbyn administration.

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Prime minister Boris Johnson wants to “get Brexit done,” but with Brexit the unresolved issue of the UK’s future trade relationship with the EU and other countries still remains and is expected to be one of the big concerns at the end of 2020.

If Brexit does happen, the UK will need to negotiate a free trade deal with the EU so it continues to enjoy tariff-free access to its market after the transition period, and will also need to negotiate and sign new trade deals with countries such as the US.

According to Johnson’s withdrawal agreement, the UK will continue trading with the existing terms until the end of the transition period which is due on 31 December 2020. He has already stated that, if he wins a majority, he will negotiate a Free Trade Agreement (FTA) with the EU which will come to replace the current arrangement at the end of 2020. The deadline for next year is considered among economists and politicians a very challenging one, as the time frame is limited and the subject matter demanding and complicated. As it is usually the case, trade negotiations take years, so it is similarly expected that Johnson’s trade agreement will be a difficult task, impossible to deliver as promised. Of course, it will be possible to extend the transition period, but this should be decided by 1 July.

As a Financial Times article notes, it is difficult to see the EU and the UK reaching a deal in as little as five months, especially when there’s legal and translation issues involved. A draft for an EU-Japan deal took four months and 10 days to prepare, “including ‘legal scrubbing’ and translation into 24 official EU languages — and this is viewed in Brussels as an example of the bloc moving at breakneck speed.”

In the case of Canada’s deal with the EU, this took more than five years to complete and another three before it came into force. For some, the UK-EU trade deal will be even more difficult as the two sides will attempt to establish a new relationship that seeks to replace an older one, while for others, the negotiation will be fast and quick as we are already in sync with EU regulations.

What is an FTA?

An FTA is a multinational trade agreement that creates a free-trade area between different states and determines the tariffs and duties on imports and exports in order to eliminate trade barriers, such as trade taxes or tariffs. While a customs union is more encompassing and requires all parties to have the same external tariffs, a free-trade agreement allows countries to establish whatever tariffs they wish, otherwise adopting a preferential treatment system.

If the EU and the UK are unable to reach a trade agreement within the specified time frame, then the UK will revert to World Trade Organization (WTO) terms – which means British exporters would have to face the same tariffs as other countries as the US or China. But even with a trade agreement, the privileges that are currently enjoyed under the customs union will be lost.  A trade agreement will mean more costs and more bureaucratic control for UK companies, which is why economists are warning that Brexit will damage the UK economy.

The UK is also in the process of rolling over the EU’s existing free trade deals with other countries in order to avoid losing tariff-free access to the EU after Brexit. The UK has signed 19 continuity deals with 49 countries. The UK’s biggest trading partners are the US and the UK, with the US being the UK's biggest single trading partner, and the EU accounting for 46% of UK exports. The problem with striking an FTA with the US is the obvious standards in food products, especially when in the US regulations are not as strict as in the EU, with the most obvious examples being genetically modified foods and chlorinated chicken.

At the moment, one of the most important Brexit outcomes is considered to be the resolution of a trade agreement with the EU by the end of next year, as the scenario of leaving without a trade deal will not only result in a political crisis for the government, but also an economic one for the whole of the UK.

Imports and exports

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