UK Election – The Scenario

Morning View:
Will we get a hung Parliament in the UK?

That really is the question on traders lips as the UK goes to the polls today in what is shaping up as an election that could dramatically change their relationship with the European Union. However, it is the word ‘could’ that is key in that statement, with the uncertainty of no clear winner or direction sure to wreak havoc on financial markets across Europe and beyond.

Prime Minister David Cameron is leading the charge toward uncertainty, pledging to hold a referendum on the UK’s membership in the EU. Being part of the EU has never quite struck a cord with the general public but businesses enjoy the conditions under which they can more easily trade throughout the continent.

Read into pre-election polling at your own peril but throughout the election campaign, things have stayed pretty much the same. It’s almost even thirds between David Cameron’s Conservatives, Ed Miliband’s Labour Party, and then the rest. With no party occupying a clear majority, everything is pointing to the dreaded hung parliament and the possible weeks of re-negotiations and deals being done to form any sort of functioning government.

So what does this mean for the Pound?:
With all this talk of uncertainty weighing on the Pound, you would have expected to see more damage being done on a chart than what we have got. Markets have taken more notice of the Hawkish BoE combined with a weak USD and given Cable some strength over the last few weeks.

But it’s once the election results are clear that the real moves will come.

A Conservative majority or Conservative-led coalition is seen as being a positive for the UK economy. It will offer the certainty of the current government serving for another term, keeping the BoE on it’s current path of beginning a fresh rate hiking cycle and therefore GBP positive.

A Labour majority or similar Labour led coalition on the other hand is seen as having policies that are less beneficial for the economy as a whole. If a new Labour government is elected, economic growth uncertainty that comes with a new government will potentially be seen as GBP negative.

Any type of hung parliament will of course also be GBP negative.

The Charts:
GBP/USD Daily:

EUR/GBP Weekly: 

GBP/JPY Weekly: