British election angst turns to pound euphoria as rally beats all

It didn't take long for the pound to recover from angst over the UK election.

Sterling has more than regained its losses against the dollar in the week leading up to the May 7 vote and options traders are slashing bearish bets at the fastest pace since September. A measure of anticipated volatility tumbled back below its five-year average, after surging on speculation the vote would fail to produce a clear winner and lead to weeks of political horse-trading.

None of that came to pass, of course, and David Cameron's Conservative Party won an outright majority that wasn't foreseen in any of the major opinion polls. Even a reduction in the Bank of England's quarterly growth forecasts on Wednesday wasn't enough to completely derail sterling's rebound as investors focused their attention on an economy that's strong enough to warrant a potential increase in borrowing costs in the next 12 months.