Strategists at JP Morgan have today released a note to the media suggesting that a coalition led by Labour may actually cause the pound to rally.
This goes against conventional market thinking which has been pricing a ‘strong and stable’ conservative government as the best outcome for sterling.
JP Morgan FX Strategist, Paul Meggyesi said:
“The wake-up call for markets was a YouGov poll released on Thursday– this shows a halving in the Conservative lead to only 5pts compared to an average of polls at the start of the week.”
“A hung parliament would in more normal circumstances be viewed as quite negative for sterling – that was very much the experience of the 2015 election when sterling was braced for one of a myriad of potential coalition permutations only for sterling to jump by 3pc once David Cameron secured an improbable narrow majority.”
Meggyesi suggests that a coalition would remove the risk of a ‘Hard-Brexit’ or ‘no-deal’ with the EU being touted by Theresa May if she doesn’t get her way in negotiations.
“In the post-referendum world, all political developments need to be viewed through a Brexit prism and an argument can be made that a hung parliament which delivered or held out the prospect of a softer-Brexit coalition of the left-of-centre parties (Labour/Lib Dems/SNP) might actually be sterling positive.”
