Early hurricanes in the Atlantic could be a metaphor for what lies ahead for the pound if there is a surprise outcome from UK elections this week. GBP/USD has been quietly meandering for several weeks as investors seem convinced there will be aclean change of UK government, avoiding a hung parliament. However, the ongoing French elections are a reminder that financial markets can't afford to be complacent in pricing for a non-event. And the pound certainly knows how to liven up foreign exchanges at short notice. In the period since the Brexit vote in 2016 there have been a few spectacular collapses for sterling, which include the dive to a record low during the Liz Truss fallout. Moreover, GBP/USD implied volatility is also subdued, which shows there is a plenty of room for a big reaction should the election results spring a surprise.
Mark Cranfield is a macro strategist for Bloomberg's Markets Live team based in Singapore |
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