UK goes to the polls as investors brace for “Triple Threat Thursday”

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8 June 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Today’s general election in the UK headlines a particularly busy day in financial markets that could create an especially volatile session of currency trading.

W
hat had a few weeks ago boded to be a formality is now shaping up to be a very close run affair. The opinion polls have narrowed and many are now giving the Conservative Party only a very slender advantage of less than 3 or 4 percent. However, Sterling rose against its major peers on Wednesday, with investors taking on the view that incumbent Theresa May will do just enough to secure the majority vote she needs in order to strengthen the Government’s hand during the imminent Brexit negotiations. Online prediction website PredictIt, a reliable tool we use to gauge the implied likelihood of a variety of political events, now places upwards of a 65% probability that the Tories will win in excess of 350 seats today, marginally higher than earlier in the week.

We think that anything other than a comfortable majority victory for the Tories north of around the 350 seats mark would heap heavily selling pressure on the Pound. The prospect of a hung parliament in particular would be a serious Sterling negative and we’d expect an immediate depreciation in the UK currency in excess of 5% should this be the case when the results begin filtering through during the early hours of Friday morning.

ECB to hold policy, time for a hawkish shift from Draghi?

Before we get any sort of indication as to the result of the election, President of the European Central Bank Mario Draghi will be announcing the central bank’s latest monetary policy decision this afternoon. Growth and inflation in the Eurozone have shown solid signs of improvement and there has been some serious speculation that Draghi will hint that the time for a dialling back its large scale quantitative easing programme is on the way. However, we think it is too soon at this juncture, particularly following last week’s underwhelming core inflation print. We think Draghi will disappoint the market and keep a fairly neutral tone, although we acknowledge there is a very real risk he could take on a slightly more hawkish bias.

Comey testimony rounds out “Triple Threat Thursday”

Last, but by no means least, is the testimony by former FBI director James Comey in the US today. This marks his first public appearance since he was abruptly fired by Trump amid allegations that the President had leaked confidential information about the so-called Islamic State with Russia. Comey is particularly outspoken, in the vein of Trump himself, and fireworks are to be expected when he testifies before the Senate intelligence committee from 14:00 UK time.

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