Cable’s rally in the wake of last month’s decision to call a snap election is rational. The 8 June vote removes the prospect of a 2020 UK general election, the year after Brexit take effect, postponing it until 2022. It increases the probability of political continuity and a Conservative Party government, according to recent polls – an expectation which has proven GBP positive in the past.


In recent weeks price action has backed up this hypothesis. As the Tory lead in the opinion polls has narrowed from 23 points to as little as 5 points, GBP has come under pressure. However, under the UK’s “first past the post” system this would still be enough for the Conservatives to secure an election win. We do not believe this snap election will materially alter the probabilities attached to a ‘hard’ or ‘soft’ Brexit from the Article 50 negotiation process.

Get free trial of FxWatcher service and check out the rest of todays currency commentaries>>>

Indeed, once the election is over, we expect GBP to resume its weakening trend. Politically, the currency remains vulnerable to a potentially acrimonious negotiation process with the EU and the lingering possibility of a ‘no deal’ outcome. Structurally, the renewed widening in the trade deficit is a recurring headache that requires more adjustment lower in GBP. Finally, there are some signs that the economy is losing traction, notably through slower consumer spending that has driven GDP growth lower.

We believe this recent rally is most likely to have marked the 2017 high for Cable at around 1.30. We continue to believe GBP-USD will weaken back to 1.20 and EUR-GBP will move to parity by the end of 2017 on the back of political, structural and cyclical pressures.

Error, group does not exist! Check your syntax! (ID: 3)