* Markets see Johnson win as meaning orderly Brexit
* Sterling back at July 2016 levels vs euro
* Rallies more than 2% vs dollar, highest since May 2018
* Sentiment behind the pound for now, say analysts
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Updates prices, adds quotes)
By Tommy Wilkes
LONDON, Dec 13 (Reuters) - The pound surged more than 2% on
Thursday as Prime Minister Boris Johnson's Conservative Party
won a resounding election victory that markets believe makes an
orderly British exit from the European Union all but certain.
Sterling reached a 19-month high versus the dollar and its
strongest levels against the euro since shortly after the 2016
Brexit referendum.
Its jump - as much as 2.5% - versus the dollar put it on
course for its biggest one-day gain in nearly three years, a
remarkable gain for a currency that has become extremely
volatile since the referendum.
Chastened by 3-1/2 years of political instability in
Britain, investors seized on the expected Conservative
landslide, believing it will enable Johnson to deliver Brexit
on Jan. 31.
That would end immediate fears about the United Kingdom
crashing out of the EU.
"Just as Boris Johnson was desperately seeking his majority,
this result would give the markets their ultimate wish:
clarity," said Dean Turner, Economist at UBS Wealth Management.
Johnson's Conservatives were on course to win a comfortable
majority of more than 70 seats in the 650-seat parliament in
what could be the biggest Conservative national election win
since Margaret Thatcher's 1987 triumph. The Conservatives claimed a string of Leave-supporting seats
from Labour in the opposition party's heartlands of Wales and
northern England, results showed. The pound rocketed 2.5% higher to $1.3516 GBP=D3 - its
highest since May 2018 - in the immediate aftermath of the exit
polls. It later settled at $1.3472, up 2.3% on the day.
Against the euro, sterling rose as high as 82.80 pence
EURGBP=D3 , up more than 2% on the day, leaving the pound at
levels last seen in July 2016, shortly after the Brexit
referendum that hammered the currency. The pound traded around
76 pence per euro before the June 2016 Brexit vote.
"Markets will start focusing on the longer-term outlook of
what a future trade relationship with the EU will look like and
the pound's gains will be capped in the $1.35-$1.37 area," said
Joel Kruger, a currency strategist at LMAX Exchange.
Johnson faces the daunting task of negotiating a trade
agreement with the EU, possibly in just 11 months, while also
negotiating another trade deal with U.S. President Donald Trump.
The outcome of the negotiations will shape the future of
Britain's economy. After Jan. 31, Britain will enter a
transition period during which it will negotiate a new
relationship with the remaining 27 EU states.
Peter Kinsella, global Head of FX strategy at UBP said the
pound's gains was a "relief rally" that the Labour Party under
Jeremy Corbyn was unlikely to win and reflected the size of the
majority the Conservatives looked set to claim.
FTSE 100 futures FFIc1 edged 0.2% higher. The
exporter-heavy FTSE 100 often weakens when sterling rallies.
Corbyn's nationalisation plans have weighed on UK domestic
stocks, and energy and transport shares were tipped to climb
when the stock exchange opens on Friday.
Yields on British government bonds are set to rise as
investors buy into riskier assets like stocks.
Sterling traders at banks and investment firms worked
through the night, with the bulk of parliamentary seats declared
before 0500 GMT.
Broader global markets gained on Friday, boosted by both the
likely UK election result and reports a last-gasp trade deal had
averted new U.S. tariffs on China. NOT DONE
Political uncertainty has dogged the performance of British
assets and the pound since the referendum as investors fretted
about the damage a departure from the EU would cause the UK
economy.
Markets' enthusiasm for a Conservative victory under Johnson
contrasts with the summer, when sterling slumped as investors
worried Britain was headed for a disorderly and economically
damaging no-deal Brexit under his leadership.
But Johnson subsequently secured a new agreement with
Brussels and then called a snap election after accusing
parliament of frustrating his plans.
He fought the election under the slogan of "Get Brexit
Done", promising to end the deadlock.
The opposition Labour Party promised the public a second
Brexit referendum.
But Brexit is far from over and though expected price swings
in the pound over the next week have fallen sharply after the
election outcome, they remain elevated compared to other
currencies, signalling concerns about the economy's outlook
remained.
"However, Brexit isn't yet really 'done', and attention will
quickly turn to the future trade relationship. This phase looks
set to be every bit as difficult as the last, with just over 12
months until the transition period ends on 31 December 2020,"
said UBS Wealth's economist Turner.
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