Investing.com — On Tuesday, British Prime Minister Rishi Sunak surprised political observers by announcing that Britain’s general election will take place on July 4, a departure from the widely expected autumn schedule. Despite this unexpected development, sterling saw minimal impact, with two-month implied volatility showing a modest increase of around 20 basis points to stand at 6.20, still relatively subdued compared to April’s figures.
The market’s tepid reaction to the election news appears to reflect confidence in current opinion polls, which show the Labor Party with a significant lead over the incumbent Conservative Party. This lead suggests that Labour, under Keir Starmer, could potentially form a government even without an absolute parliamentary majority. Unlike previous years, current political events in Britain, such as trade relations with the EU, unfunded budget spending and the Scottish referendum, pose only marginal risks, according to market observers.
As the short campaign period begins, there is a possibility that the pound will respond to the Labor leadership’s pre-election promises, barring major shifts in the polls in favor of the Conservatives. Nevertheless, such moves are expected to be small swings within the pound’s broader trajectory, which is mainly influenced by domestic economic data, Bank of England (BoE) monetary policy and expectations for the US Federal Reserve.
From a market perspective, the recent UK services inflation surprise was considered more important than the election announcement. Based on the inflation data, the market has adjusted its expectations and is now pricing in only 12 basis points of easing in August, down from the pre-consumer price index forecast of 25 basis points, and only 37 basis points by year-end. . Market analysts maintain a bullish view on , despite the pair approaching the crucial support level at 0.8500, and see no need to change their forecasts based on the UK election manifesto.
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