British Pound Traders Experience a Quiet Election Night

The tradition holds that traders in London pull an all-nighter during a potentially decisive national election in the United Kingdom. However, on the night of the most recent landslide victory of the Labour Party under Sir Keir Starmer, the City remained surprisingly calm. Pizza boxes and soda bottles, usually faithful companions through nerve-wracking nights, were largely untouched this time. Ahead of the anticipated Labour majority, the options markets were prepared to cushion minor fluctuations of the pound on the day after the election. But when the first predictions at 10 PM forecasted a clear Labour victory, trading volume remained low. "You could count the number of pound transactions on one hand," a banker reported. The next morning, it almost seemed as though no election had taken place. Stocks rose slightly, in line with the rest of the European markets, with homebuilders standing out in particular. Bond prices increased, and the pound remained stable. The general indifference could be attributed to the fact that opinion polls had been predicting a Labour win for months. However, this calm before the storm was interpreted as a compliment to the stability of the new government—the very stability that Liz Truss's "mini" budget in 2022 failed to achieve. The United Kingdom is now considered one of the safer bets in the region, especially compared to the political landscape in France, where a hung parliament or a far-right government might be on the horizon. Shahab Jalinoos from UBS views the pound as an "island of stability," which might continue to gain strength should Germany follow a similar political path. Monica Defend from Amundi Investment Institute expressed positive sentiments about British government bonds, highlighting that Starmer’s election brings England closer to being a safe investment. She emphasized that UK Fixed Income, despite having a minor weight in global benchmarks, could be attractive to international investors. The impacts on the stock market are more difficult to assess, as the FTSE 100 more closely reflects the health of global companies. Björn Jesch from DWS remains skeptical, criticizing the UK as an unattractive trading partner. Laura Foll from Janus Henderson Investors, however, sees the politically stable situation as an opportunity for British equities to become more attractive again. "Boring is good," she said, emphasizing the desire for political stability since the Brexit referendum in 2016.