The prospect of British Prime Minister David Cameron's party staying in power saw sterling spike nearly 2 percent on Friday, but traders say the rally is unlikely to last after the election shine fades.
The pound breached the key $1.55 level for the first time since February during Asian trade on Friday, well above a five-year low of $1.4653 hit last month, after early exit polls suggested a strong victory for the Conservatives. The results were a surprise to many experts who had anticipated a hung parliament.
"Sterling has liked the idea of avoiding a protracted period of unworkably weak government," said Kit Juckes, global head of foreign exchange strategy at Societe Generale.
The FTSE market is also likely to see a rally when it comes online on Friday, noted Evan Lucas, market strategist at IG.
But whether the rally can be sustained depends on how strong the coalition will be.
"The prospect for a strong coalition isn't great. Even if the Tories get back in government, the number of seats they hold will be much lower than what it was five years ago, so this could actually be a more fragile coalition," said Nizam Idris, managing director and head of strategy, fixed Income and currencies, at Macquarie. "With the opposition getting seats, that could create more hurdles for the Tories."
Moreover, the threat of a looming 'Brexit' is expected to limit any future upside.
"If the Conservatives do have a successful night as the exit polls suggest, then we're going to head towards a 2017 referendum for a reformed European Union that David Cameron has promised. That is going to bring in a lot of uncertainty," said Heather Conley, director of the Europe Program at the Center for Strategic and International Studies.