During his 25-year career's in the financial markets, Joseph Trevisani has been observing and closely following worlwide economy and politics and how they impact and relate to the currencies. Mr. Trevisani will hold a special Webinar on The British Election and The European Project tomorrow at 14.00 GMT/10.00 am EDT.
We've talked with him about tomorrow's election in the UK. He downplays the effects of a possible UKIP rise and a Brexit referendum and argues that "either coalition government will support the current BoE policy".
It depends on the coalition outlook, the likelihood of a hung parliament is already priced into the sterling. If the Conservatives and Liberal Democrats perhaps with the UKIP appear to have the upper hand the sterling should rally modestly, with the end of the uncertainty of the election the primary driver. The UKIPâ€s influence on David Cameronâ€™s government, and their avowed anti-EU program would not be a major factor unless the Liberal Democrats suffer a catastrophic loss of seats and the UKIP is the second party in the collation. Either way there will probably be a referendum on British membership in the EU, something markets will not like but will not focus on until it is closer. If Labor appears able to form a government with the Scottish Nationalists (SNP) an EU referendum is probably off the table, which will benefit the sterling but will be countered by concern about the influence of the SNP on the new government. Any hint of Scottish independence will be very negative for the sterling.Which currency is the more likely to benefit from a possible GBP sell-off?
The Swiss Franc, the U.S. Dollar and the Euro, in that order. The Swiss for reasons of European access, safety and currency appreciation. The Dollar for general safety, liquidity and currency appreciation. Flows into the Euro from Britain will be restrained as long as Greece hangs over the united currency.
Do you think the result of the UK Election will have an impact on the BoE rate hike agenda?
No, I think that either a Conservative or Labor coalition government will support the current BoE policy, which despite a recent slowdown is arguably the most successful of the post-recession industrial world.Regarding the equities, do you agree with the thought that the FTSE 100 will move up if the Conservatives win the elections or down in case of a Labour win?
Yes. As long as the Conservatives are not in coalition with the SNP, a unlikely event. The SNPâ€™s independence and devolution agenda is a greater and closer threat to the UK economy, equities and sterling than the anti-EU program of the UKIP. Since the probable scenarios are a Labor/SNP government or a Conservative/Liberal Democrat and perhaps UKIP government it is the presence of the SNP in a coalition that is the danger for equity and currency values..Another intriguing subject may be the rise of UKIP and the possibility of a Brexit referendum. How could that affect the markets?
The possible EU exit referendum which both the Conservatives and UKIP have promised will not have much influence now if these parties with the Liberal Democrats form a government for two reasons. First the EU referendum is distant, it would take place in 2017 and second, the success or failure of such a vote is far from determined. Until the vote is scheduled and polling indicates a trend the markets are likely to ignore the possibility of an British exit from the EU.