The UK elections are very tight and the impact of the results could be seen in GBP for quite some time.
Here is the assessment from Credit Agricole:
Here is their view, courtesy of eFXnews:
GBP-crosses remain stuck in ranges suggesting there is no strong market view on the pound ahead of the elections. With polls still very close to call investors will likely wait for the results to be released before putting on a directional trade. The first exit polls will be available soon after 10PM BST today and preliminary results will start hitting the screens tonight and into the Friday morning. Ahead of the elections, our expectation is still for a hung parliament where no party is able to form a majority government. The party with the biggest number of seats (the latest polls suggest this would be the conservatives) is likely to get the chance to form a government first.
The FX markets should welcome a Conservatives win especially if their current coalition partners – the Lib Dems – win enough seats to preserve the status quo. At the same time, GBP could weaken in response to a Labour win especially if they have to rely on the SNP to form a government. We suspect that such an outcome should fuel fears about another Scottish independence referendum and weigh on GBP.
Investors should also prepare for a potentially protracted coalition building process. Back in 2010, the negotiations took only 5 days. We think this could be achievable only if the incumbent Conservatives/Lib Dems coalition is voted back into office. Other outcomes where Labour emerges as the biggest party and/ or Lib Dems see the number of their MPs vastly reduced for example should fuel post-election uncertainty and weigh on GBP.
With the UK economy still doing rather well there will be no real pressure on the parties to form a government quickly. Indeed, while the formal opening of the parliament is on May 18, the Queen’s speech and, in effect, the real deadline for forming a government is scheduled for May 27. The 2w and 3w GBPUSD ATM implied vol is already trading above the highs printed in the wake the Scottish referendum and this seems to clash with GBP’s apparent resilience of late
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