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- Early elections seen to be negative for GBP - ING
Early elections seen to be negative for GBP - ING
Petr Krpata, an FX strategist at ING, confirms that the extension of Article 50 and early election by late November/early December remains the firm's base case.
- "The extension may well last longer than three months to provide sufficient time for the new government to engage with the EU.
- Early elections will be sterling negative in our view given that (a) Prime Minister Boris Johnson will likely run on a ticket of a divisive stance against the EU to fend off the Brexit Party; and (b) the non-negligible likelihood of the Conservative Party gaining a majority and subsequent increased odds of a hard Brexit. This would translate into a build-up of sterling risk premia, which are currently narrow (as per above).
- We expect GBP/USD to fall below the 1.20 level (also helped by the lower EUR/USD) and EUR/GBP to re-test the 0.93 level.
- Note that the increased odds of hard Brexit should also limit the upside to EUR/USD and be negative for the European FX segment as a whole (be it G10 currencies or Central and Eastern European FX)."
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