the pound is on the back foot, partially due to the downgrade of GDP. In the meantime, campaigning is resuming and Labour continues to narrow its gap against the Conservatives. What does it mean for sterling?
Here is their view, courtesy of eFXnews:
Nomura FX Strategy Research notes that Conservative lead over Labor is falling and there are risks of it narrowing further going into the June-8 elections.
“If this trend continues at its current pace we cannot rule out the possibility of a hung parliament, even if such an outcome is very slim,” Nomura argues.
What would it mean for Gilt?
“For the Gilt market outlook if Labour wins the election, higher Gilt yields are the obvious conclusion thanks to a combination of a) fiscal easing lifting growth and inflation expectations, b) more substantial levels of issuance, c) Brexit plans reducing the chances of a hard exit or cliff-edge,” Nomura projects.
What would it mean for GBP?
“At first GBP may suffer as a result from the UK shifting to the left-leaning side of politics and investors’ expectations of larger deficit financing, but because of the higher real yields we would expect and hopes of a soft Brexit (or indeed no Brexit at all) this should eventually provide support to the currency,” Nomura adds.
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