LONDON (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.

(Graphic - Euro vs British pound: )

“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.

(Graphic - Sterling vs U.S. dollar: )

FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

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.

BREXIT 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.