Bulk of GBP impact from UK election to stem from exit poll
June 28 (Reuters) -The UK will head to polls in just under a week, though compared to previous UK elections there is less uncertainty than usual about the outcome of the July 4 vote. Opinion polls have consistently shown that the Labour Party is set for a historic majority. As a result, the initial impact on sterling is expected to be considerably more muted than in recent times.
The bulk of the move in GBP can be expected to stem from the release of the exit poll at 22:00 BST on the day of the election. As shown in the table below, the exit poll is often very accurate, with the average difference between the poll and the actual result around six seats since 2010.
Meanwhile, the average initial move in cable following the exit poll is roughly 250pips. However, as mentioned, given that there is a lack of uncertainty around the outcome, the reaction in the currency is likely to be far below the average. A sizeable majority for Labour as indicated by the polls is likely to be looked on favourably – at least in the immediate aftermath – by markets as a signal of political stability.
That said, outside of short-term gyrations from the election, the outlook for monetary policy is still the key driver for sterling. Longer-term there is a case for sterling to perform well against the euro as the Labour party looks to establish closer ties with the European Union. That, however, is very much an issue for next yearnL1N3HV1SC.
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UK EXIT POLL VS ACTUAL RESULT https://tmsnrt.rs/4eFCfI5
GBP impact from exit poll https://tmsnrt.rs/4bnndnp
gbpusd performance during uk elections https://tmsnrt.rs/44UbxXK
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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