TD Research discusses GBP outlook in light of the latest Brexit developments.
"In the UK, the newly coined Brexit party captured the highest share of the votes (including UKIP, pro-Brexit parties shared 35% of the vote). Turnout was less than 40%, so it's a challenge to argue any firm conclusions on this outcome. At the same time, the total percentage of "remain" parties outstripped the pro-Brexit coalition, coming in at 40%. The clear losers were the mainstream parties, which offers the alternative parties a chance to pitch their message about where to take Brexit. Given the shifting political sands, the outcome looks more binary than anything else: a second referendum or a hard-Brexit.
The upshot is that the impact of these elections reduces the odds of a "compromised" agreement. The next big risk event pivots to the Tory leadership process, which falls into two stages over the summer. A possible no-confidence vote also lingers in the background,"TD notes.
"We note that GBP now trades at roughly 2-sigmas from HFFV. That offers some room for a tactical bounce in GBPCHF, though that's a one week view. Beyond that, we think GBP pops will be brief and shallow, offering better levels to sell GBPUSD and buy into EURGBP dips," TD adds.