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3 Mar 2015
Election jitters could undermine GBP momentum – BAML
FXStreet (Edinburgh) - Analysts at BAML expect volatility to increase around the sterling in light of the upcoming elections in the UK.
Key Quotes
“Indeed, the relative outperformance of UK versus US data surprises has been a key driver of the improvement in GBP/USD sentiment. The outperformance of GBP versus EUR has been less easy to explain using similar metrics”.
“Euro Area data surprises have actually outperformed their UK counterparts and EUR/GBP looks cheap relative rate differentials. Part of the explanation for the slide in EUR/GBP (-2% over the past month) perhaps lies elsewhere”.
“As we have highlighted, though GBP has benefited from cyclical tailwinds, it still has to contend with the structural headwinds in the form of a sizeable current account deficit. The reliance upon capital flows to finance the burgeoning deficit is likely to come into stark focus in and around the General Election and supports our case for a reversal in recent GBP action”.
“GBP is likely to become increasingly sensitive to the ebb and flow of election polls. The market is increasingly expecting a complicated outcome, but a decisive move by any party in the polls will see further heightened volatility”.
Key Quotes
“Indeed, the relative outperformance of UK versus US data surprises has been a key driver of the improvement in GBP/USD sentiment. The outperformance of GBP versus EUR has been less easy to explain using similar metrics”.
“Euro Area data surprises have actually outperformed their UK counterparts and EUR/GBP looks cheap relative rate differentials. Part of the explanation for the slide in EUR/GBP (-2% over the past month) perhaps lies elsewhere”.
“As we have highlighted, though GBP has benefited from cyclical tailwinds, it still has to contend with the structural headwinds in the form of a sizeable current account deficit. The reliance upon capital flows to finance the burgeoning deficit is likely to come into stark focus in and around the General Election and supports our case for a reversal in recent GBP action”.
“GBP is likely to become increasingly sensitive to the ebb and flow of election polls. The market is increasingly expecting a complicated outcome, but a decisive move by any party in the polls will see further heightened volatility”.