Barclays say that the May 7 General Election has become the dominant risk to GBP this year. It is the most uncertain in a generation, not only in lacking a front runner,but also in the range of possible outcomes.
(Bolding mine)
- Current seat projections show no two-party coalition is possible
- The race extremely tight between the Conservatives and Labour
- The Liberal Democrats retreating and smaller parties such as the SNP, UKIP, Greens gaining strongly
- Markets appear to be well pricing election-day risks (perhaps too richly) ... they may be underpricing the risks that uncertainty persists well after the election, particularly in the case of a minority, unstable coalition government or even snap elections
Here's a bit of a handy 'cheat sheet' from Barclays:
And ...
OK, so that is actually 2 cheat sheets.
Never let it be said I don't give ForexLive readers the sheets.
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More specifically on the GBP from Barclays ... GBP: Two-sided post-election risks
- Low and falling inflation has kept the Bank of England on hold, but inflation pressures are set to pick up sharply late this year
- A weak coalition or minority government likely would refocus markets' attention on the strong UK
economy and the prospects for the Bank of England to shed its dovish tone - But a strong majority government could, ironically, pose greater challenges for sterling
- Labour promises more tax-based consolidations that tend to be less FX friendly
- But the aggressiveness of planned Conservative consolidation may push back the BoE
