The UK's political landscape remains fluid ahead of Thursday's crucial election, explained Ned Rumpeltin, European Head of FX Strategy at TD Securities (TDS).
Key Quotes:
“Sterling has given up some of its recent gains overnight after a key poll showed the Conservative's lead was starting to shrink. A hung Parliament would mean the UK's political chaos would continue, but even a diminished Tory majority means a still-cloudy future. We think cable would have plenty of room to fall if the Conservatives stumble at the ballot box.”
“The post-poll dip back below 1.32 overnight suggests we have edged back from that a bit. Despite this, however, we think there is still quite a bit of scope for disappointment if the market's primary expectation is disappointed.”
“As a result, sterling's recent gains leave it vulnerable to a meaningful correction if anything less than a full Tory sweep is the result this week. If we do get an unstable Conservative majority, we would not be surprised to see cable push lower to test the 1.2985/1.3015 breakout zone. This may not provide sufficient support, however. We would not be surprised to see a deeper correction toward 1.2880 ahead of 1.2820/25 by early next week. Beyond this, sterling may settle down and establish new trading ranges into year-end with leadership reverting to the USD leg overall.”
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