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23 Apr 2015
GBP could weaken ahead of the UK election – Danske Bank
FXStreet (Edinburgh) - Allan von Mehren, Chief Analyst at Danske Bank, sees the sterling resuming its downside ahead of the UK elections next month.
Key Quotes
“The GBP appreciated yesterday both against the USD and the EUR, supported by a bit more hawkish comments in the BoE minutes from the April meeting”.
“In particular the comments about the exchange rate appreciation were interpreted as hawkish, indicating that the MPC probably is a bit less concerned about the recent sterling appreciation than previously expected”.
“We still expect the GBP to weaken in the coming weeks ahead of the UK general election on 7 May”.
“Since the April 1997 election, the GBP has declined against the USD in the last two weeks up to the election day, possibly reflecting an increased risk premium being priced in as the election approaches”.
“Hence, we still like to be short GBP/USD going into the election. Besides the election risk, we also expect the tendency for negative US data surprises to reverse over the coming months and we expect the market to increasingly price in Fed rate hikes”.
“Hence, on a relative basis, we expect short-term US interest rates to increase more than equivalent UK rates, supporting the case for a lower GBP/USD ahead of a Fed funds hike in September”.
Key Quotes
“The GBP appreciated yesterday both against the USD and the EUR, supported by a bit more hawkish comments in the BoE minutes from the April meeting”.
“In particular the comments about the exchange rate appreciation were interpreted as hawkish, indicating that the MPC probably is a bit less concerned about the recent sterling appreciation than previously expected”.
“We still expect the GBP to weaken in the coming weeks ahead of the UK general election on 7 May”.
“Since the April 1997 election, the GBP has declined against the USD in the last two weeks up to the election day, possibly reflecting an increased risk premium being priced in as the election approaches”.
“Hence, we still like to be short GBP/USD going into the election. Besides the election risk, we also expect the tendency for negative US data surprises to reverse over the coming months and we expect the market to increasingly price in Fed rate hikes”.
“Hence, on a relative basis, we expect short-term US interest rates to increase more than equivalent UK rates, supporting the case for a lower GBP/USD ahead of a Fed funds hike in September”.