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Sterling jumps as Nigel Farage says Brexit party will not fight Conservatives in key seats

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Brexit Party leader Nigel Farage speaking at the launch of the Brexit Party's manifesto today in Central London.

KEY POINTS
• Reports suggest the Brexit Party will stand down a further 43 candidates in the upcoming election.
• Brexit Party leader Nigel Farage had already removed any opposition to the U.K. Conservative Party in the parliamentary seats it is defending.

Sterling has jumped against the dollar and euro after Brexit Party leader Nigel Farage said he will not fight the Conservation in the 317 seats it won in 2017, giving a big boost to Prime Minister Boris Johnson.

Traders were heartened by Farage’s announcement, viewing it as increasing the chances that Johnson will win the 12 December General Election and take Britain out of the EU with a deal, providing some certainty to the economy.

The pound rose rapidly shortly after midday when Farage made his announcement in Hartlepool. Most recently it stood 0.81 per cent higher at $1.288. It struck a six-month high against the euro, rising 0.66 per cent to €1.1669.

Farage attributed his change of heart – he had originally pledged to field 600 candidates – to a video by Johnson that last night said there would be no extension of the Brexit transition period. The PM also said he would negotiate a free-trade deal with no political alignment.

Most analysts view a Conservative election victory as the best scenario for the pound. Johnson’s Brexit deal includes a transition period during which the UK and the EU would try to thrash out a free-trade agreement.

The Brexit Party leader had previously threatened to contest almost all the U.K.’s parliamentary seats in a move that could have split the “pro-leave” Brexit vote in the election on December 12 — seen by some as a de-facto vote on the country’s withdrawal from the EU.

It is hoped that this transition period would see business investment, which has suffered this year, pick up.

Farage had previously offered to enter into a “leave alliance” with the Conservatives in which certain seats were contested but Downing Street refused to entertain such an offer.

Farage attributed his decision to give the Conservatives a “free run” in certain seats to comments made by U.K. Prime Minister Boris Johnson on Sunday night, where he claimed that there would be no extension of the Brexit transition period which ends in December 2020.

Michael Hewson, chief market analyst at CMC Markets, said a Tory victory would “in all likelihood” boost sterling “if they manage to push through the withdrawal agreement, and make speedy progress with respect to sorting out the future relationship”.

Ruth Lea of Arbuthnot Banking Group said she thought the worst outcome for the pound would be a Labour majority: “I would expect the markets to react very badly.”

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