Allan von Mehren, Chief Analyst at Danske Bank, assessed the potential scenario following the UK’s general elections.
“The prospect of a hung UK parliament based on the first exit poll initially led EUR/GBP to jump above the 0.88 level last night but the knee-jerk reaction has been moderated a bit with the possibility of a Tory-led government that may just about get a slim majority and the cross is trading around 0.8780 at the time of writing”.
“What matters for sterling near term is the strength of the government that goesto Brussels to negotiate Brexit terms on behalf of the UK – and with any possible governing coalition set to be weak, so will GBP be. There is clearly a risk of EUR/GBP breaking above 0.88 again if the Tories fall short of even a slim majority”.
“Notably, speculators covered GBP shorts ahead of the election, suggesting room for speculative GBP selling near term. On top of the ‘Brexit uncertainty premium’, which has been haunting GBP”.