Today marks the date of the general election and the first December election in 96 years from the last election in 1923. The previous few weeks have seen the campaign trails in full swing to gain support for their parties with MP’s jostling for their last chance to get their voices heard, with particular remarks surrounding their Brexit plans. During the run-up to the election, there have been some changes to the voting pattern over the course of this month.
The most recent YouGov polls have indicated that the Conservatives could receive 43% of the total votes against the next closest party and the Corbyn-lead Labour party 34% - a 9% difference. This had changed from previous polls which saw the difference between them at a wider 11%. Whilst these are not exact figures for the voting population it does give an insight into how the voting pattern has changed during their respective campaign trails.
Should this voting gap further reduce between the Tories and Labour, the Conservative Party may not receive a significant enough working majority which makes it considerably harder for them to pass Brexit legislation through Parliament. A consequence of this may be that politics reverts to the previous deadlock seen in Parliament whereby there isn’t enough support for a deal to be offered to the EU. This may have the possibility of weakening sterling as this would continue the uncertainty surround any Brexit deal progress.
Having said this, should the majority be attained, Stephen Gallo at BMO Capital has that if the voting gap remains at the desired 11%, they could be a significant rally for sterling with the potential even for rates to breach the 1.20 barrier between the GBP/EUR. This is significant considering that 1.19 has been a key resistance level for the currency pairing over this week and would place sterling at a 2.5 year high against the euro, an 8 month high against the US and Canadian dollar and a considerable 3.5 year high against the Australian dollar, to name just a few.
To put into context, the volatility that Friday’s election can have on the currency market, City economists have stated that a Conservative majority has the influence to bolster GBP/USD rates into the 1.40 levels – a 1.5 year high and an additional 8 cents on top of the current mid-market rates.
Yet, however unlikely, a Labour victory could be baked into the currency market and cause the GBP/USD rates to plummet to 1.15 – a 35 year low and a reduction of 17 cents.
Alongside the general election we have a few other factors which can still have an impact on the markets to come.
Whilst Friday is lacking in volatility-causing data, today marks the release of Swiss National Bank (SNB) interest rate decision and accompanying Monetary Policy Statement which is to be announced this morning. Coupling this CHF-influenced release is the overarching Coup’s Interest Rate decision from the European Central Bank. Now headed by Christine Lagarde, this will be her first rate decision and is expected to come with criticism based off her prior education which lacked a monetary policy background, unlike the previous President Mario Draghi who resigned back in late October. As a result, there could be some volatility surrounding euro exchange rates today.
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