Pound Reaches Highest Level in Three Months

By Josie Cox, Ewen Chew and Rebecca Howard 

        The pound rose to its highest level in three months and U.K. stock markets surged as Prime Minister David Cameron's Conservative Party drew stronger-than-expected support in the U.K. election, putting it on course to be able to govern alone, returns indicated.
        The U.K. currency gained 1.3% versus the dollar to trade as high as $1.5515, from $1.5243 before exit polls late Thursday, and was recently at $1.5460. London's FTSE 100--the benchmark equity index of the country's largest companies--shot 1.7% higher in the first minutes of trading Friday morning.
        The Conservatives' strong showing would be a far different result than the dead heat predicted in months of pre-election surveys.
        "This result is far less complicated than the markets' worst fears," said Bill O'Neill, head of the U.K. investment office at UBS Wealth Management, which has $668 billion in assets under management. "With certainty will come a renewed confidence from investors in a more stable and transparent policy climate."
        "Any result would likely have been positive," said Brian Jacobsen, a chief portfolio strategist at Wells Fargo Asset Management, which oversees approximately $500 billion in assets. "In an election, after all, you give the people what they want."
        Steven Englander, head of developed-market foreign exchange strategy at Citigroup Inc., said the pound will likely trade in a wide range against the dollar during the day but should stay below $1.5564. He doesn't expect it to slip back below $1.5200.
        Some strategists and investors cautioned that a government led by Mr. Cameron could hurt sterling in the longer term because of his pledge to hold a referendum on whether Britain should stay in the European Union.
        "That referendum risk...will haunt the currency at a later stage," said Phyllis Papadavid, senior global currency strategist at BNP Paribas.
        The pound has rallied over the past month after a rough start to 2015. U.K. stock markets have also been robust so far this year. The FTSE 100 has added close to 5% so far this year and hit its highest closing level ever April 27.
        In Hong Kong, stocks of U.K. banks Standard Chartered PLC and HSBC Holdings PLC rose 1.4% and 1.2%, respectively.
        Even the FTSE 250 index of midcap companies--traditionally more exposed to the domestic economy and therefore particularly vulnerable to political jitters--was able to shrug off the uncertainty to rise 8.5% this year.
        Write to Josie Cox at josie.cox@wsj.com, Ewen Chew at ewen.chew@wsj.com and Rebecca Howard at rebecca.howard@wsj.com
        (END) Dow Jones Newswires

        May 08, 2015 03:19 ET (07:19 GMT)

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