11/01/2019 - Possibility Of A General Election

GBP

Sterling dipped on Thursday as speculation continues to increase around the likelihood of a UK general election. Theresa May has lost two parliamentary votes in two days, raising the prospects that a general election could be called in the aftermath of next week’s vote.

This comes despite expectations for sterling volatility declining slightly in the aftermath of British lawmakers demanding that the government come up with a plan B within days if May loses the January 15 Brexit Vote. The vote on Wednesday night has appeared to reduce the chances that Britain will leave the European Union on March 29 without a deal. Expectations for sterling price swings have diminished slightly as one month implied volatility fell.

The 2 defeats in parliament have undermined the prime minister’s authority and has increased the possibility of a general election. This weighed on the pound as the day progressed as worries surfaced about the prospects of a Labour Party government.

Jeremy Corbyn said on Thursday that a national election must be the priority if parliament rejects May’s deal. The idea of a Corbyn led government is weighing on Sterling, as nationalisation policies would lead to increased borrowing which would be a negative for the budget deficit and therefore the pound.

Key Announcements

09.30 – GBP: Gross Domestic Product (MoM) (Nov); expected to remain at 0.1%
13.30 – USD: Consumer Price Index (YoY) (Dec); expected to remain at 2.2%