The election will take place on December 12
Bank of America Merrill Lynch Global Research discusses GBP outlook ahead of next month's UK elections.
"Are we finally heading for some closure on phase 1 of Brexit? Possibly but not certainly. The House of Common's last night authorised a 12 December UK general election. Assuming the legislation passes through the House of Lords today then we examine the economic impact of three scenarios for that election result:
- Conservative Party majority and Brexit deal agreed.
- Labour minority government and Brexit referendum.
- Hung parliament, lack of clarity,no deal risks potentially return," BofAML notes.
"An unprecedented fourth general election in nine years provides a large body of evidence on how FX markets are likely to react pre and post the election. One unambiguous conclusion, and our preferred way to express a view on GBP is to expect higher volatility over the coming month in the run up to election day. We would caution in directional spot views largely because the complacency in 2017 for a large Conservative majority evaporated in the days leading up to polling day we do not doubt that this could happen again and over the coming weeks, GBP sensitivity to opinion polls is likely to increase.
For choice, we think GBPUSD could struggle to sustain a break above 1.30 in the run up to the election. We would also caution that some of the traditional polling metrics such as a party's competence on running the economy or the NHS may not be as relevant this time because of the focus on Brexit," BofAML adds.
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