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What's ahead for the Pound after the December 12th UK election?
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Loading...Since the December 12 government election was announced, cable has become a pendulum of initial poll results. The currency remains in the range from 1.2750 to 1.30 from mid-October.
The downward movement is limited by the expectation that Boris Johnson will win by a majority and succeed in activating his Brexit plan. Upward movements, however, are limited by memories of past elections and the referendum itself: the initial analyzes are not famous for their accuracy.
The status of the pound is currently only changing whether the Conservatives are on track to win with a majority that is positive for the currency. It rises from a number of preliminary data that indicate they will gain and with much. Every week, on Monday, new data is published to keep traders energized.
Indications that Jeremy Corbyn may win seats to limit the influence of B.J. have a negative impact on the pounds.
Of course, the USD also exerts its influence to drive volatility. The Fed is not expected to lower interest rates again, which also limits the upward movement of the pound.
On the other hand, the US is approaching a deal with China, which limits demand for the US dollar as a safe heaven currency. Some of the US economic data also does not support the currency: US production is in recession, although the UK also does not boast good PMI data.
Would Brexit end uncertainty if Conservatives win by majority?
As long as the answer to this question is clear, the cable will remain in the range, but what to expect after the election? GBP / USD is likely to attract buyers in the formation of a majority and may break above 1.30 even before the election date. This can happen if good indications of the party continue from early polls.
Even if the tensions go down, the markets will focus on EU-UK trade negotiations. It took them three and a half years for the UK to negotiate the first phase of negotiations with the EU. In the meantime, the UK has been shattered by the chaos on several occasions. Trade negotiations can be delayed, further enhancing uncertainty.
However, the likelihood of a no - deal Brexit will continue to attract the bears even as Johnson succeeds in pushing the deal through parliament by January 31st. The Prime Minister has promised he will no longer extend the transit period - a period in which Britain will remain bound by the EU and the bloc's laws to reach a trade deal beyond December 31, 2020. This means the UK will still have a chance to avoid WTO rules.
There is a back-up option to extend the transit period to 2022. Given what the past three and a half years have been like, most likely B.J. will propose an extension of this period.
It should also be recalled that he promised not to extend Point 50 beyond October 31, but because of the legal framework imposed by the rebels in the government, this had to happen. It is difficult to imagine that parliament will be involved during the trade negotiations as well.
This means we can see a sharp rise in the pound on the eve of the election and remain buyer-friendly as January 31 approaches. The question is, however, will it hold these high potential levels when reality meets investors? When do they find out they will face another year of Brexit uncertainty?
Trader Martin Nikolov Read more:
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