BoE matters more to sterling than the UK election
July 4 (Reuters) -As UK voters go to the polls, the result is near enough to a forgone conclusion, with the Labour party set for a landslide win. With this much certainty heading into the election, the impact on the pound should be considerably more limited than has been the case in recent times.
Option implied volatility signals as much, with the one-day implied move at 54pips for GBP/USD. For context, the initial reaction in cable following the release of the exit poll in the last four elections averaged 250pips.
With polling opinions consistently showing a historic Labour majority is expected, there is a lack of surprise element to invoke a reaction in the currency.
Sure, there will be a sense of political stability, but equally, little changes are expected for fiscal policy in the near-term amid the lack of headroom, thus, by extension there will be little ramifications for the Bank of England’s policy.
That said, the pound will take its cues from the BoE’s policy outlook. Therefore, as officials exit the election blackout period, it will be a change in their rhetoric to tee up an August rate cut, which will move the needle for the currency. For now, monetary policy is the key driver for GBP.
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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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