How will sterling be affected by the election result?
After a very long build up, the general election voting is finally one week away. The uncertainty of its outcome has had an increasing influence on sterling’s position in the currency market since it’s March peak rate – but the British currency has shown further strength than expected against its main currency pairs this week. This goes against the expected trend given the closeness of the election, although is in the main due to external factors – such as the re-emerging fears over a Greece exit from the EU, and poor economic data from across the pond.
However, with only seven days to go until polling day, all indicators point to sterling becoming hampered by continued ambiguity – expected to continue beyond 7th May if the expected result of a hung parliament comes to pass.
A result of this kind would almost certainly have a negative event on sterling – as it did in 2010. On the day after the last election, Friday 7th May 2010, there was a 5% negative movement in the GBP/EUR rate. Of course, five years on, the UK economy is much more robust than it was then, and there are much few worries about our banks and financial system – and the result is almost unilaterally expected; however, the fact that if you had been buying €100,000 you would have lost almost £5,000 is still worrying.
We know that the strength of sterling will be majorly affected by the election and a hung parliament result, but what is less apparent is how it will perform when (if?) a new government is put together – whatever form this takes. The most popular options at the current time appear to be a Conservative-run coalition, a Labour-run coalition, or a minority government.
Of these outcomes, which is the best for the performance of sterling in the months following May?
In general terms, a Conservative-run government could be the best option for sterling’s strength, as investors could take confidence in a ‘business as usual’ approach – although any aggressive pushing of the proposed EU referendum could dramatically affect this.
Could businesses go bust under Labour?
There is already a worry that a Labour-run government could have adverse effects for business – and this would have a more negative effect on the strength of sterling, at least in the immediate weeks and months after the election. This is due to the possibility of taxes for the wealthy and overspending delaying the end of the deficit.
Scottish power bad news for sterling?
The worst possible option for sterling strength in the immediate aftermath of the election could possibly be a Labour-SNP coalition. As well as amplifying the current anti-business fears that surround Ed Miliband’s party, there would also be re-emerging worries about the SNP’s plans regarding another independent Scotland – which itself had a negative effect on sterling last year. Investors may also be concerned that Labour could lose seats to the SNP in upcoming council elections – which would have a knock on effect on their governing status.
Whatever happens, it’s obvious that the election will have an effect on the strength of sterling. If you plan to make currency transfers in the coming weeks, it’s a really good idea to speak to Smart Currency Exchange. By opening a free, no-obligation account with us, you will be allocated a personal trader who will be able to keep an eye on the currency market for you at this uncertain time.