The value of sterling is being significantly affected by the UK election. The British pound will be quite volatile over the coming 24 hours as the UK votes on a new British government. The parliamentary election could go either way, with various polls providing conflicting results. In short, it is too close to call and the result will have an effect on the value of sterling.
Sterling reached a two-week high Thursday morning, as some polls indicated a win for the Conservatives. However, some polls are showing the two main parties to be neck and neck. Some money is on an outright Labour win for Jeremy Corbyn.
Spot trading of the pound against the euro and US dollar was only around half the normal volume. In fact, most activity seems to be in options contracts that investors and businesses use to hedge against major currency swings. Although the smart money is on a Tory victory, there could be a big swing should Labour pull it off against the odds.
While Labour has been making recent gains in popularity, it would still be a major upset should the Conservative party lose. Another likely result is a hung parliament, with each party relying on the minor parties to maintain its position in government. This would likely result in a drop in the value of sterling.
The value of sterling is now at it highest rate against the euro since the British voted for the UK to leave the EU – commonly referred to as ‘Brexit.’ In fact, Thursday is liable to be a very volatile day.
In addition to the UK general election, there is the European Central Bank (ECB) meeting in the afternoon. Also James Comey’s statement will be made today. The former two will likely have more effect on markets and currency values than the Comey statement.
If the Conservatives have a good victory, a likely effect will be a surge in the value of sterling against the euro and the dollar. The final predictions carried out before polling indicate the Conservatives to have a lead of around 7.5%. The party’s lead in the 2016 general election was 6.5%. This indicates an increased majority for Theresa May, although not all opinion polls agree. Some have it neck and neck, with the Tories having just a 1%- 3% lead.
Uncertainty in the UK election result has also resulted in a flat housing market. In May, house prices rose at the slowest rate in 9 months. There was also a drop in the number of houses being put on the market.
Today will tell all, and most people are hoping for a positive result one way or the other. Nobody benefits from a hung parliament. The value of sterling would remain volatile pending deals and potential multiparty alliances.
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