Pre UK Election Market Eye

Headlines

• GBP volatility increasing
• Year End GBP Forecasts being revised lower
• Risks to GBP as Election results awaited

What are the possible scenarios ahead of tomorrow’s UK General Election?

As we near the election the polls continue to show a narrowing between the two main parties and we are seeing increased volatility in Sterling.

A number of City institutions have continued to revise lower their year-end GBP forecasts, Principled Finance have reiterated our year-end view:

• GBPUSD = 1.2725
• GBPEUR = 1.2324 

Supporting this forecast are recent signs that activity in the UK economy is showing signs of weakness.

Current polls are suggesting that the Conservative party hold a slender lead to win the election. A poor result in terms of seats could see the party lose its majority in the Houses of Parliament, the key number to form a majority government is 326.

 What are the plausible outcomes?

Conservative Win (Large Majority)

• This outcome is considered to be the most positive for the pound following the result of the election.
• According to a recent poll GBPUSD could reach $1.31 and one analyst predicting $1.33. With GBPEUR at €1.1550.

Conservative Win (With Increased Majority)

• With an increased majority, the market isn’t expecting a slide in the pound as investors shift their focus to the commencement of Brexit negotiations.
• According to analysts whom Principled Finance have spoken with, GBP is likely to move very little from its current levels but the consensus suggests that we may see it tip over $1.30 for GBPUSD and €1.15 for GBPEUR.

Reduced Majority/Hung Parliament

• This outcome is considered to be the most damaging for the Pound.
• This would create uncertainty about the future of the government and potentially undermine or possibly delay the government's impending Brexit negotiations.
• With this outcome, analysts suggest selling pressure taking GBPUSD down to $1.235 with one analyst suggesting a 7% fall to $1.20, with GBPEUR forecast to hit €1.10.

Labour Party Win

• Short term this result would hurt the pound, but longer term could potentially be beneficial for GBP Sterling with the prospect of a softer Brexit negotiation and an increase in fiscal spending.
• An outright Labour win seems unlikely, however a coalition with the Scottish National Party or the Liberal Democrats is considered possible, again this is seen as short term negative for GBP. 

It is worth clients with pending GBP transactions considering executing payments before polls close at 10pm tomorrow (Thursday) to avoid any potential spike in pound price volatility expected on Friday morning. 

Historical movements

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GBPUSD 1.2944

GBPEUR 1.1497

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