Sterling surges to highest level in two years against euro as investors eye Conservative election victory
Sterling has hit its highest level against the euro since May 2017 in a sharp rally driven by conviction that Boris Johnson's Conservative Party will romp to victory next week.
Short-sellers, who had previously speculated the pound would drop on a hung parliament or Labour Party victory in the General Election on December 12, scrambled to get on the right side of the market swing.
Against the euro, the pound gained as much as 0.7% to 84.71p per euro, the strongest level since May 2017. Gains against the dollar were almost as strong.
Bank of Ireland Market's Cian Pierce said the markets were betting that UK pollsters were correctly predicting that Conservatives would consolidate their lead over Labour.
The stronger pound is a boost for the Republic of Ireland's retail trade heading into its busiest period, making cross-border shopping and online shopping from the UK less attractive for bargain hunters.
Mr Pierce said: "As we edge closer to the December 12 election, foreign exchange markets appear increasingly comfortable with the recent polling, despite their difficulty in predicting recent elections. "The last focal point for sterling before the general election will be the scheduled debate between Boris Johnson and Jeremy Corbyn on Friday. (It is) the final hurdle for Prime Minister Johnson to clear before voters take to the polls."
If Boris Johnson's campaign is not derailed by any shocks, Mr Pierce is predicting the pound to strengthen further to below 84p against the euro.
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Investors see a Conservative majority after December 12 as the most market-positive outcome, allowing Boris Johnson to push his already agreed Brexit deal through Parliament in time for a January 31 Brexit and subsequent shift to the next phase of talks with the European Union.
That said, Mr Pierce also believes a shock to the Conservative campaign remains a possibility and would set sterling up for a volatile week.
Pollsters are fighting a poor track record after markets were surprised by the result of the Brexit vote in June 2016 and the 2017 UK general election.
This time around, the potential for the election to become a proxy Brexit re-run for some voters could see some people ditch traditional party political allegiances.
The unpredictable political scene means volatility could return next year, even with a parliamentary majority.
The pound has acted as a barometer of political risk throughout Brexit.