EUR/GBP rallies on early prospects of a hung parliament, Theresa May to resign?

Currently, EUR/GBP is trading at 0.8795, up 1.62% on the day, having posted a daily high at 0.8827 and low at 0.8643.

GBP Plummets as Majority Eludes Conservatives in Exit Polls

EUR/GBP rallied hard on the outcome of this exit poll. This will now be a long night /day ahead depending on where you are trading in the world.

The Conservatives are shown to have won less of a majority than Cameron had done in 2015 at just 314 and below Cameron's 331.  

It's now down to 20 seats either way. PM May needs 20 more seats to avoid a hung parliament.  The Conservatives need 326 and the polls have only shown 314 seats. Most expected GBP and UK assets to rally in case of a Conservative victory, regardless of the size of the victory, as it would remove one source of uncertainty. However, if this exit poll is right, the gamble has failed - 266 seats is a phenomenal result for the Labour party.

It now all depends on the declarations and the swing states such as Sunderland. 

Market reaction to Exit Poll & latest prices in trading markets

Sterling scenarios on exit polls and swing states if exit poll not conclusive:

• Conservative victory with Absolute Majority (Scenario 1) - A Conservative victory with an absolute majority should be supportive initially for the pound. Stock markets would be relieved on the lower corporation tax outlook and a risk-on environment could be the expected outcome. However, with a focus on Brexit and PM May's hardline - "No deal is better than a bad deal" - approach to the negotiations, a hard Brexit outlook could equate to a bearish scenario to the pound eventually - (Note: Remain cautious of a 'buy the rumour sell the fact' trade - a Conservative victory is virtually priced in).
• Conservative victory without Absolute Majority (Scenario 2) - With the narrowing of the polls and a trend that has been continuing, the possibility of a hung parliament should not be ruled out, (When no party has won enough seats to have a majority in the House of Commons). Such an outcome could be highly bearish for the pound due to the uncertainty for markets to deal with. However, in a hung parliament, the incumbent prime minister stays in office until it is decided who will attempt to form a new government - this could support the pound after an initial sell-off. (Note: A hung parliament does NOT necessarily mean a coalition government). 
• Laborist victory (Scenario 3) - A balanced outcome for the pound with initial volatility on the basis of Labour’s manifesto. Initially, a lower pound could be the immediate outcome bias due to increased uncertainty and a reduction of inflows. However, a Labour victory should mean a softer Brexit outlook and austerity would be removed, (Fiscal easing lifting growth and inflation expectations). Higher real yields may offset the initial weakness in the pound.

While it is still too early to speculate, there are questions of whether PM May will be prime minister by the end of the night, and even in the best case scenario for the Conservatives, if there were to be a hung parliament, the Prime Minister may be resigning having failed on her gamble. Her credibility is now shot to pieces. She said previously that if she lost six seats, she would not be the prime minister. 

EUR/GBP levels

0.8850 guards a rally to 0.9050 on the wide. 0.8650 guards 0.8600 and 0.8520 on the wide to the downside.