UK: Early elections will be negative for GBP – ING

Petr Krpata, chief EMEA FX and IR strategist at ING, suggests that their base case remains the extension of Article 50 and early election by late November / early December.

Key Quotes

“The extension may well last longer than three months to provide sufficient time for the new government to engage with the EU.”

“Early elections will be sterling negative in our view given that (a) Prime Minister Boris Johnson will likely run on a ticket of a divisive stance against the EU to fend off the Brexit Party; and (b) the non-negligible likelihood of the Conservative Party gaining a majority and subsequent increased odds of a hard Brexit. This would translate into a build-up of sterling risk premia, which are currently narrow.”

“We expect GBP/USD to fall below the 1.20 level (also helped by the lower EUR/USD) and EUR/GBP to re-test the 0.93 level.”

“Note that the increased odds of hard Brexit should also limit the upside to EUR/USD and be negative for the European FX segment as a whole (be it G10 currencies or Central and Eastern European FX).”