GBP/USD can shoot to 1.35 following a Conservative majority in the UK’s general election

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Dec 12, 2019
Updated: Mar 11, 2020
  • The UK general election on Thursday is likely to fuel an aggressive movement in the forex market.
  • Petr Krpata of ING says Cable can shoot as high as 1.35 in an event of a Conservative majority.
  • Hung Parliament or Labor majority will see a sharp decline to 1.25 to 1.24 level.

The day of the UK general election is here. With voters marching to the poll stations, analysts and investors alike are interested in seeing the impact of the different outcomes of the election on the forex market. According to economists, the three likely outcomes of the general election; conservative majority, labor majority, or a hung parliament, can be expected to fuel the most aggressive movements in GBP/USD and EUR/GBP currency pairs.

Response In The Forex Market Following A Conservative Majority

According to Petr Krpata, chief EMEA forex strategist at ING, if the Conservative party wins 300 or more seats in the general election, Cable is likely to shoot as high as $1.35 level, following the results. He further added that a drop in EUR/GBP to £0.82 can be expected in such an event. A thin majority, on the other hand, will send GBP/USD to around $1.33 level while the EUR/GBP will likely drop to £0.83. European head of forex strategy, Stephen Gallo of BMO Capital Markets, echoed the same expectations following Conservative’s victory.

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The second likely outcome, a hung parliament, following the general election in which none of the parties succeed in marking a majority, the GBP/USD pair, according to Krpata, will see a sharp decline to as low as $1.26 level. EUR/GBP will be fueled to around £0.87 in such an event. Krpata also stated that the reason for such a massive drop in Sterling is that a hung parliament puts Brexit back to square one, under the dense clouds of uncertainty. London and Capital’s investment specialist, Mathew Farrell, also commented that the downside momentum is likely to be steeper than the upward rally. According to him, Cable can drop lower to $1.25 in the days following the election if the Conservative party fails to mark its majority.

Response In The Forex Market Following A Labor Majority

Lastly, Krpata remarked, while the probability of the Labor party winning a majority is too slim, such an unexpected event will push the GBP/USD to $1.24, marking the steepest downside in the currency pair in all of the possible outcomes of the UK’s general election. The hike in EUR/GBP, on the other hand, may push the pair even higher to £0.89 level.

Having started the day at around 1.3190, GBP/USD has printed a daily high of 1.3230 on Thursday. The gain, however, has been lost, with the pair currently exchanging hands around the opening level again. EUR/GBP, on the contrary, started the day at around 0.8424 on Thursday. Keeping upbeat, the pair is currently trading at 0.8458.

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