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GBP/USD: A Tory victory is close to fully priced – MUFG

Written by By Matías Salord | 2019-12-02 20:30:16 GMT

Analysts at MUFG Bank highlight the British pound ended November practically unchanged versus the US dollar, consolidating previous gains. They see the upside limited for GBP. 

Key Quotes:

“The pound ended November close to unchanged versus the US dollar and reflects the relative stability of election opinion polling that point to the Conservative Party winning a majority in the election on 12th December. An influential YouGov poll that predicted the 2017 hung parliament predicts a 68-seat majority for the Tories and the best result since Margaret Thatcher in 1987. The pound is deriving support from this given the reduced risk of another hung parliament that would immediately bring back the prospect of a no-deal Brexit. We expect the polls to prove accurate and for Boris Johnson to win a majority and then for the UK to leave the EU on schedule on 31st January 2020.”

“We have pencilled in a rate cut by the BoE later in 2020 as we are dubious of the expectation that the UK’s departure from the EU will alleviate much uncertainty and prompt a rebound in economic activity. No-deal risks will not have gone away and given the BoE is already shifting toward the potential for cutting rates (7-2 vote with two voting to cut in November) we believe there is a high likelihood of monetary easing next year.”

“Following a Tory majority election victory in December, we would certainly expect GBP to break higher and into a 1.3000-1.3500 ranger versus USD. A brief move even higher is possible. However, we see greater risks of GBP correcting lower in H2 2020 as no-deal risks at the end of 2020 possibly increase if the Tory government sticks to its promise and does not extend the transition period from the end of 2020.”
 

Author

By Matías Salord
XM

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