The second half of last week saw increased volatility for the pound following YouGov’s first release of their MRP model projection for the 2019 general election last Wednesday.
The projection suggests that the Conservatives are set for a majority of 68 sets, indicating a total of 359 seats won for the Tories in the upcoming election.
YouGov used the same technique during the 2017 general election when their model accurately predicted a hung parliament, when other predictions pointed towards a conservative majority; the relevance of this release was reflected in the pound to euro market movements during the evening hours of Wednesday, when the pound reached new 6-months highs versus the euro at 1.1762.
The pound continued to hold onto some of its gains for the remainder of the week, closing at 1.1737 versus the euro during the Friday session.
Meanwhile, foreign exchange analysts at gold Goldman Sachs recently updated their views on the pound, saying that the pound may see further gains if a conservative majority is delivered in the upcoming election.
"If the current Conservative government were to return with a workable majority, then the Brexit process would move forward faster, with PM Johnson’s deal likely to be passed soon after the election," says Michael Cahill at Goldman Sachs.
Last Friday, GfK released their latest Consumer Confidence Index (CCI) data for the period of November 2019. The data saw no change to the 6-year low of -14, which shows a continued lack of optimism in the economy by the British consumer.
Joe Staton, Client Strategy Director at GfK, says: “In the face of Brexit and election uncertainty, consumers are clearly in a ‘wait-and-see’ mode. The score for the general economy over the coming year has ticked up three points and this is possibly an indication that some consumers believe the imminent general election might clear the Brexit deadlock, even though this sub-measure is still in deeply negative territory at -34. (overall score of -14)”.
This “wait-and-see” approach may be reflected in the currency market leading up to the December general election, while the results could bring further volatility to the pound as expressed by the Goldman Sachs analysts.
Last Friday’s trading session saw European stocks end the week with their worst day in November despite a record high earlier that week on signs of progress in the ongoing U.S.-China trade talks; The pan-European STOXX 600 index fell 0.4%, but still posted its biggest weekly gain from positive trade headlines in earlier sessions.
Trade-sensitive miners .SXPP and auto parts makers .SXAP shed more than 1% each on Friday, while export-laden Frankfurt shares dipped 0.1% even as unemployment in Germany - Europe’s powerhouse - unexpectedly declined in November.
The decline saw a drop from October’s unemployment figure of 5%, to the current 3.1% which may see a change of sentiment in the eurozone and therefore volatility in the currency and stock markets following the opening of Monday’s trading session.
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