GBP – the road after the elections – genxfxtrader

GBP – the road after the elections – genxfxtrader

The result of the parliamentary elections in Britain is the failure of Prime Minister Theresa May – instead of strengthening its mandate undermines its leadership in one of the most important for the country’s future moments. While the weakening of the position of conservatives can be interpreted as increasing the chances of a smoother Brexit, this is not entirely true. However, political instability indicates a weakness in the short and medium term.

The parliamentary elections of June 8 give rise to so –
called “hung parliament” in which no party won an absolute majority. The Conservative Party received 318 seats of the 650 seats in the House of Commons, 12 less than in the previous legislature, and 8 less than the 326 needed for an absolute majority rule. Saturday, May’s office announced an alliance agreement with the Democratic Unionist Party of Northern Ireland (DUP), but later the deal was withdrawn. The premier can fight for the additional support of the DUP, which give it 10 votes and a majority. It may also gave some of his prominent conservative rivals as part of a small cabinet reshuffle positions.

political uncertainty

The uncertain future of the DUP-conservative alliance means that the market will
challenge the mandate of Prime Minister May and its ability to effectively implement its policy (mainly negotiations Brexit). His resignation remains a real threat, resulting in a campaign for leadership of the Conservative Party for several weeks. This would create further chaos and delays in negotiating the EU divorce.

Negotiations Brexit 

The start of official talks between Britain and the European Union has been scheduled for 19 June, and although there is
no sign that the time change, any news of delay will be detrimental to the pound. There is a view that the weakest result of the Conservative Party in the elections is a red card given by the British to the concept of a “hard Brexit” (protection of the British labor market of foreigners at the expense of free trade within the single market European). This aims to increase the chances of a smoother negotiation position, otherwise the government could have problems with the adoption of necessary bills in parliament. Furthermore, the possible coalition member the DUP wants free trade agreements and “frictionless border” with Ireland. However, in a similar vein, the influence of the Eurosceptics in the Conservative Party, which wants a sharp and rapid break with the EU. Therefore, the scope under which you can search amicably May Brexit may be limited. Moreover, even if the risk of “hard Brexit” has decreased, it is difficult to consider a more benign solution as beneficial to the UK economy if the new trade agreements with the EU are not as good as their actual participation in the European single market . It should be borne in mind that the EU has its own negotiating agenda, which is mainly to send a strong signal to the Eurosceptics movements in other countries, where the separation of the EU will be a painful process. Brussels gives its highest priority to the protection of the rights of its citizens, without concessions London in this area (unlikely) trade relations will worsen.

BoE policy

With increasing political uncertainty, it
is unlikely that the Bank of England to change its position at its next meeting on Thursday and in the coming months. The minority government poses the risk of dampening economic sentiment, which is already showing signs of weakness. The market has already priced the first interest rate rise in September 2019, and we doubt that these expectations will be presented anytime soon.

Implications for GBP

2017 brings the period of increased volatility of the pound.
The outcome of the elections last week, involves the advantage of the downside risks, whose full power has not yet materialized. It is likely to see a further depreciation of the pound, particularly because the position of the pound sterling has been desbancándose strongly due to the elections. At the same time, we view that there will be “soft” and constant movement. Considering how strong and sudden blips pound have been in recent months, investors will now be more cautious in creating the GBP short positions. Thus, the exchange rate will be susceptible to impulsive movements within the so – called “shorts”. However, we think that overall, the pound is weaker against the euro and the dollar. We maintain our forecast for the pair GBP / USD at 1.25 and EUR / GBP to 0.88 by the end of the year.

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