GBP/USD: Sterling to pay attention to Scottish elections just before the vote – TDS
|The next Scottish parliamentary election is coming up on 6 May, in just over three weeks. So far, at least, the FX market has been content to ignore potential risks of Scotland's upcoming election. With investors still focused on the pandemic recovery, economists at TD Securities think sentiment has grown more resilient against these shocks. That can change quickly, however, if the underlying political dynamic begins to shift in the final days of the campaign.
Markets don’t seem bothered by Scottish election risks
“Recent polling suggests that it's nearly a certainty that the SNP will be the largest party, and is on the cusp of winning a majority mandate. But even if the SNP underperforms at the polls, it will still be able to form a substantial pro-independence majority with the support of the Greens and possibly Alba.”
“The primary implication of a clearly pro-independence Scottish government is that they will now be pushing for a new independence referendum. However, this is going to be a multi-month, dragged through the courts, constitutional issue. Our base case sees the UK government successfully denying Scotland the ability to hold a referendum, at least for the duration of this (UK) parliament, but this outcome is not a certainty and will bear close watching.”
“The FX market is not particularly concerned with Scottish election risks. The question, of course, quickly becomes whether the FX market will start to care in the remaining days before the vote. From our perspective, we cannot dismiss this as a possibility. We must, of course, stand ready for the market to pivot quickly to these concerns, particularly as the noise in the press picks up.”
“The overarching theme and focus for FX markets remains dominated by the virus and relative prospects for recovery. We do not expect that to change any time soon. In our experience, FX markets tend to focus on only one thing at a time and there is simply not a lot of spare room on the market's front burner.”
“We are currently inclined to downplay the risks that the upcoming election in Scotland and its immediate aftermath will become a sustained driver for sterling. That said, we readily acknowledge the issue can bubble quickly to the surface in the short-term. With that in mind, we see merit in having some degree of exposure to (or protection against) potential GBP downside over the next several weeks. Importantly, however, this simply ties in with our pre-existing view for a weaker pound over the next several weeks against a range of major currencies.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.