- The UK’s electorate vote at this week’s general election putting pound under the spotlight.
- A hung parliament would take EUR/GBP towards 0.86-0.88 range.
- Base case is for a Tory victory and a Brexit deal to support GBP.
EUR/GBP will be a major theme for the weeks ahead as the UK’s electorate make their say at this week’s general election, from which a vote for the Conservative’s will likely finalise a Brexit deal with the EU. At the time of writing, EUR/GBP is trading at 0.8412 having regained ground from the day’s low of 0.8392. The session high has ben 0.8426, in line with the 50 1-hour moving average’s resistance.
All eyes on UK elections
While there will be a number of events, such as UK manufacturing and UK Industrial Production, the European Central Bank and the Federal Reserve, there will be major focus on the UK elections instead where a drop in EUR/GBP is presumed on a base case scenario that he Tories get to vote on the withdrawal bill following PM Boris Jhonson’s victory and before Christmas – thus getting a deal over the line with the EU which is a bullish scenario for both UK politics and the pound.
“We would assume a drop to the tune of 0.5-1.0 percent in EUR/GBP under the base case, thus settling in at the high end of 0.83-0.84 in the days after the election,” analysts at Danske Bank argued.
Meanwhile, the analysts also noted that under the alternative scenario of a hung parliament, they believe the market would sour and take EUR/GBP towards 0.86-0.88 range. Anything fewer than 340 seats (out of 650) would point to continued instability in 2020 as party hard-liners pull the government in opposite directions. Fewer than 312 Conservative seats risk a Labour-led government – see here for a UK election preview.
Share
