The British pound continues to advance for the fourth day in a row, by 0.16%, reaching the level of 1.27808 at the peak of the rises, which represents the highest levels since last June 13.
The gains come after the Conservative Party’s historic victory in the general elections by doubling its number of seats, in addition to the continued decline of the dollar and Treasury bond yields, with the downward momentum created by Wednesday’s data remaining.
The Labor Party doubled its number of seats in Parliament and won 410 out of 650, while the ruling Conservative Party lost 249 seats over the previous 14 years, retaining only 119.
It seems that the British street seems happier with getting rid of Conservatives rule than with a Labor victory. Polls indicate that 48% of those who voted for Labor aimed to get rid Conservatives, according to the Wall Street Journal.
While the Labor Party had made promises to make British politics pragmatic and put rule in the hands of technocrats, in addition to “stopping the chaos” brought by the Conservatives.
I believe that these promises, if fulfilled, may provide a state of comfort in the street after the dramatic developments in recent years, thus enhancing the state of certainty, whether economic or political. This is what I also believe may push gilt yields further below, which may put pressure on the pound in turn.
British bond yields have already declined, but the weakness of the dollar and the decline in Treasury yields appear to have moderated that negative effect and ultimately led to further gains in the pound.
The pressure on British gilt yield to decline today comes after the unexpected contraction in the Halifax House Price Index, which in turn gives more encouragement to the Bank of England to cut interest rates this summer as negative signs continue to flow from the housing market.
The last of these negative signs was the decline in housing activities, which was noted in yesterday’s construction PMI report for the same period.
While housing prices fell by 0.2% last June on a monthly basis, contrary to expectations for a growth of 0.2%, the reading remained unchanged at a growth of 1.6%.
Away from the UK, we have seen some flexibility in the negotiating path for a ceasefire in Gaza with talk of a real chance of achieving an actual breakthrough. This ceasefire, if achieved, may lead to a broader path of calm throughout the Middle East, as the continuation of the war in Gaza threatened to ignite more than one front in the region and plunge it into a state of total chaos.
I believe that this decline in fears of a regional war may reduce the strength of the dollar as a safe haven, prompting it to give up some of its gains against the major currencies.
