As investors awaited the US jobs report later on Friday, sterling seized the spotlight, rallying to its highest in over two months against the dollar as Britain’s election results showed Prime Minister David Cameron’s Conservatives were set to win a second term.
With 75 per cent of the seats counted, the Conservatives appeared set to govern Britain for another five years.
Cameron said he hoped to form a government in the coming days after his party enjoyed what he described as a “very strong night’’.
Sterling gained 1.6 per cent on the day to $1.5486 after rising as high as $1.5523, its highest since February 26, pulling further away from a five-year low of $1.4567 plumbed in mid-April.
Sterling vs euro
The pound also marked its biggest one-day move against the euro since early 2013. The euro plummeted more than 2 per cent on the day to 72.36 pence after touching a low of 72.19 pence, its lowest level since April 30, and well below a three-month peak of 74.82 pence scaled only a day ago.
While it was still unclear whether the Cameron would seek to forge another coalition or his Conservatives could govern alone, the election result is likely to trigger a referendum on Britain’s membership of the European Union within two years, while Scots could soon be pressing for independence again.
“An EU referendum would be the main longer-term focus. We have to wait to see what Cameron says, and then what kind of coalition government he assembles,’’ said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
“The pound is initially rising on the exit poll results, and pound volatility is also likely to rise.’’
Pressured by its performance against the pound, the euro fell about 0.5 per cent on the day against the greenback to $1.1203, slipping from the previous session’s two-month high of $1.1392. Against the yen, it fetched 134.35, down about 0.4 per cent on the day and off Thursday’s two-month peak just below 136.00.
The dollar bought 119.92 yen, up about 0.2 per cent.
Dollar bulls
Dollar bulls took hope from data on Thursday showing the number of Americans filing new claims for unemployment benefits held near a 15-year low last week.
The data helped bolster expectations for a relatively strong employment report. Economists forecast non-farm payrolls to increase by 224,000 in April, after gaining 126,000 in March, when bad weather held back hiring.
Australian dollar
The Australian dollar was nearly flat on the day after initially rising and then skidding after a quarterly statement of monetary policy from Australia’s central bank gave no clear indication on interest rates.
The Aussie stood at $0.7902, after the Reserve Bank of Australia trimmed its inflation and growth forecasts, while also highlighting green shoots in the economy. At its May 5 meeting, the RBA had cut its cash rate to a record low 2.0 percent as expected.