Investing.com – On Tuesday, UK Prime Minister Rishi Sunak surprised political observers by announcing that the UK general election would be held on July 4, a deviation from the widely expected fall schedule. Despite this unexpected development, the British pound saw little impact, with two-month implied volatility showing a modest increase of around 20 basis points, settling at 6.20, still relatively weak compared to April numbers.
The market's tepid response to the election news appears to reflect confidence in current opinion polls, which show Labor with a significant lead over the incumbent Conservatives. This progress suggests that Labour, led by Keir Starmer, can form a government even without an absolute parliamentary majority. Unlike previous years, current political events in the UK such as trade relations with the European Union, unfunded budget expenditures, and the Scottish referendum represent only marginal risks, according to market observers.
As the short election campaign period begins, there is a possibility that sterling will react to the pre-election promises from the Labor leadership, barring any major shifts in the polls in favor of the Conservatives. However, such moves are expected to be minor fluctuations within the broader path of the British pound, which is mainly influenced by domestic economic data, Bank of England monetary policy, and expectations on the US Federal Reserve.
From a market perspective, the recent surprise in UK services inflation was seen as more important than the election announcement. In the wake of the inflation data, the market has revised its expectations, now pricing in just 12 basis points of easing by August, down from the PPI forecast of 25 basis points, and just 37 basis points by the end of the year. . Market analysts maintain a bullish outlook for the pair, despite the pair approaching the crucial 0.8500 support level, and see no need to change their forecasts based on the UK election timeline.
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