The polling stations are open in the United Kingdom. Around 50 million voters have the opportunity to shape the next parliament and government, as well as the next move for the pound.
So far, GBP did not move too much on opinion polls, but these have been extremely stable. This will surely change once we get the results, as the market certainly has its preferences.
Tight elections
The most recent opinion polls show a dead heat between the incumbent Conservatives and opposition Labour. PM David Cameron oversaw a coalition government in the past 5 years, something that is quite uncommon. And things are expected to get more complicated.
Not only are the main parties very close, but neither is expected to command an absolute majority. It’s either another coalition government which could be more complicated this time, or a minority government, which will be unstable by definition.
The markets would prefer the business-friendly Tories over Labour, which is considered unfriendly. On the other hand, Cameron has promised an in/out referendum on European Union membership, and the mere uncertainty of Britain’s stay in the EU could be very damaging for the economy.
There is no doubt that weeks of uncertainty after the elections and the chances of an unstable government could be harmful.
But is this priced into the pound?
Not necessarily. In the past few months, cable traded between 1.4565 and 1.55. On election day, GBP/USD is trading just above the middle of the range. However, it is weaker against the recovering euro.
Where will we be after the elections?
Exit polls are due at 21:00 GMT, in the early hours of the Asian session. Given the tight race, the tension is likely to continue throughout the Asian session and into the early hours of the London session.
We could see wild swings of well over 100 pips on the post election reaction, especially as the liquidity is thin in the most critical hours.
More: GBP/USD could lose ground in May – ANZ
Here is how the recent months look on the GBP/USD chart. The moves were not related to the opinion polls.
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