What does a Conservative victory mean for the £GBP?

The Shooting Sterling Star

Upon confirmation of a Conservative strong-hold on today's election, Cable (or GBP vs USD) soared through a significant psychological barrier (1.545), as a sign of investor support for PM David Cameron and also a sigh of relief.

Cable has trades with steady strength today nearing fresh monthly highs, as investors eye a referendum to be held on the UKs exit from the EU.


Why did the polls get it so wrong? 

A few months back, large banks were calling for further lows in Cable past 1.30, as we were in for the most "uncertain" election of recent times and the prospect of another hung parliament was not likened among investors.

The idea of a Labour victory did not sit right with most traders as they planned to slower the pace of fiscal tightening leading to a BOE tightening of the UKs Monetary Policies.  However, in recent weeks the dust settled and Cable has been posting strong gains of around 4.3% in the past month as the markets now eye a Conservative backed EU referendum.

"The most market-friendly outcome" Goldman Sachs

The thing is... Markets like security and by continuing on from where we left of... we keep our "status quo".

The Conservative Economic Policy focuses around reducing the UKs huge budget deficit through cutting expenditure (Goodbye NHS)... rather than raising Taxes (Yes!).

Also, there is a more probable chance of a UK exit from the EU following a commitment to hold a referendum in 2017. Albeit a negative for trade or UK assets, our nation has slowly began to accept the reality of our shores (relying on becoming more self-sufficient) and a cry for true independence is seen as more acceptable for the public.  However, could this then spur another Scottish referendum, causing further outcry for an independent state to the North of the capital.

My long-term view for GBPUSD

On a monthly time frame we can see the impacts caused over the build up from last year into 2015 and also the knock-on effects of the (nearly 40%) fall in the Euro against the Winter/Spring bull of he USD.  However, as Yellen becomes more dovish and US rate cuts loom daringly in June, this has given strong grounds for a spur in Cable - especially for today's power move.

I anticipate a move back to the 1.68-1.70 mark through to the end of 2015 and early 2016 as the Conservatives begin another 5 year term in power.

Any thoughts/feedback would be greatly appreciated. 

Written by, Anish S. Lal, Atom8 FX