When Prime Minister Theresa May announced the election we saw Sterling exchange rates receive quite a boost as it did look like a Conservative victory was a formality, most likely by a majority. This would have led to an easier path for her in Brexit negotiations. What we have witnessed in the past few weeks is a change in momentum, polls are indicating that Labour are gaining seats and uncertainty has been creeping into the minds of investors and speculators, leading to a sell off of the Pound and the rates dropping almost on a daily basis.
Political uncertainty and economic stability are two of the key factors that will impact the value of a currency, and at present with the election and Brexit talks we are currently witnessing both.
There are a few key scenarios that we need to watch out for towards the end of this week, one thing we need to be aware of is that no particular result is guaranteed to move the rate in a certain direction, the markets will quite often swim against the tide, but this is how I feel each result may pan out in terms of currency movements.
Conservative Majority: This would more than likely give Sterling a boost and lead to a little strength for the Pound. I believe this to be the case due to the Sterling strength we saw when the election was originally announced.
Hung Parliament: Again bringing further uncertainty for the U.K this is the result anyone looking to buy foreign currency in the near future will probably want to avoid, however last time we saw a hung parliament we did see a short period of weakness and then, the Pound did regain value and push up once we had certainty on what the plans were and had a settled coalition in place. What makes this scenario a little different is there are no obvious resolutions so we may see further uncertainty in the coming weeks and further weakness for Sterling exchange rates should this happen.
Labour Majority: This is by far the most unlikely result but should we see this happen it would bring huge change and I would expect to see a drop in the value of the Pound should this occur.
All in all we have another week where economic data remains in the shadows and political certainty is in the spotlight.
At the time of writing this the odds of a hung Parliament are only at 3-1, where as one days prior to the referendum the odds were at 8-1 for the U.K to vote to leave, and we all know what happened there!
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