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May 23 - 06:55 PM

ING: UK July Election Impact on Sterling and BoE Policy

By eFXdata  —  May 23 - 03:00 PM

Synopsis:

ING discusses the implications of UK Prime Minister Rishi Sunak’s surprise announcement of a general election on 4 July for sterling and the Bank of England’s monetary policy. The analysis suggests minimal impact on GBP due to well-anticipated election outcomes and current political stability.

Key Points:

  • Election Announcement: The announcement was unexpected but has caused only a slight increase in GBP volatility, indicating limited immediate market reaction.
  • Market Sentiment: Current opinion polls favor Labour, suggesting a possible smooth transition without significant policy upheaval. This stability diminishes the potential for election-related GBP volatility.
  • Impact on Monetary Policy: The election timing is not expected to influence the Bank of England's existing monetary policy trajectory, which is focused more on domestic economic indicators.
  • Sterling's Outlook: Despite the election, the primary drivers for GBP will remain UK economic data, BoE policy actions, and comparative moves by the Federal Reserve.
  • EUR/GBP Forecast: ING maintains a bullish stance on EUR/GBP, viewing the recent inflation data and the subsequent adjustment in BoE easing expectations as more significant than the election news.

Conclusion:

The surprise announcement of a UK general election in July is not expected to alter the broader narrative for sterling, which remains vulnerable due to potential overpricing of BoE easing. The key factors influencing GBP's trajectory will continue to be domestic economic performance and central bank policies rather than short-term political developments

Source:
JP Morgan Research/Market Commentary

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