Last week, the odds for a Conservative majority to be achieved rose above 70% (On Betfair), which was the catalyst for Sterling rising to 1.1850 against the Euro and 1.3150 against the U.S Dollar.
It is clear at this point that the direction for Sterling is now entirely dependant on the outcome of the General Election this Thursday- every time an opinion poll has shown more likelihood of a Conservative majority, we have seen Sterling rise- in fact, since October- we have seen GBPUSD go from 1.22-1.31 and GBPEUR go from 1.10-1.18. So before we go any further, if you have been holding out on a transaction, I would suggest banking some profits before the Election- a rise of 6-7% doesn’t come around every day!
Now, let’s look at what to expect before Thursday- 4 days is a long time as far as the markets are concerned! Opinion polls and the media will be controlling the market as far as I am concerned, and for me, I have seen way too many polls showing that the Conservatives will somehow landslide this election- I am not saying this is impossible, but I am sceptical. I believe that markets and opinion polls have not priced in that Labour could have built up momentum over the last couple of weeks, and I feel some polls this week may show us that (Which could see Sterling fall, which is an opportunity for Sterling buyers.) Another thing is that many voters are “Tactically Voting” to keep Labour out, one thing the market is yet to price in, is that many voters may be doing the same to try and put Labour in! Essentially, anything this week that shows that the Conservative lead has narrowed will lead to Sterling weakening, and if we see the opposite to that, then, of course, I expect Sterling to continue this wonderful rally we have seen for the last month.
Now on to Thursday- as the day goes, we may see that Sterling sells off slightly as traders may be looking to bank their profits so far and hold out until the result, so this is the first thing to be aware of. As the day goes on, we will see results from many pollsters, which I do not think the market will pay much mind to- the first notable thing we will watch for is the Exit polls in the evening- this may give us the direction that we need to navigate the evening- however, as we know, Exit polls are not always correct.
As far as results are concerned, I think it is clear that a Conservative majority is what Sterling needs to continue its rally, it implies that the Brexit deal will be confirmed and that we will finally be able to see Brexit through. The next reality is a hung Parliament- this may come to a shock for the market as it clearly has not priced this in, in this circumstance it would depend entirely on who the parties are and their stance on Boris Johnson’s Brexit deal, if there is any delay to Brexit, then the Pound will weaken. Analysts have implied that though unlikely, a Labour win would be detrimental for the Pound, as it does suggest that the UK would have another referendum, which does mean more uncertainty for the markets moving forward, so really, right now, there is only one result that continues this Sterling rally.
In reality, we do not know what is going to happen this week, all we can do is prepare ourselves so that any result does not hinder our budgets and businesses. As a company, we have been trying to speak to each and every client, however, if you have not spoken to us yet and would like to, then please don’t hesitate to reach out so we can tailor a strategy for you by Thursday.