Are the Tories and the British pound “Hung ” out to dry !?
The political scenario also has a very serious impact, says Meir Velenski. Today post U.K. Elections you can see GBP/USD drop by 150 points.
Well, this “Hung parliament ” was not an option or thought , 6 weeks ago. UK politics and the U.K. weather seem to have similar patterns and synergies -hot one day and winter the next .
Theresa May, would never have even thought of the risk of the Hung ( no absolute winner) result / Parliament .
Now that the results are in , it is clear that the poor arrogant attitude , with the misreading of what the U.K. Public want has shocked the Conservative Party.
Theresa May will now resign or be kicked out and a new leader will be chosen and another election in 12 months .
FX markets and stock markets do not like Hung parliaments or instability . They need clear direction in order or plan their moves. The currency of a jurisdiction , like the U.K. Depends on a stable major like GBP. Both business leaders and the small business needs direction.
The Financial trading firms like IG, CMC , Gain , FXpro to name but a few will be very happy with the increased volatility as this adds significant volumes and overnight funding profits to their books. The small retail trader will see big jumps overnight on their positions . A lot of spread firms offered odds on the elections.
How will this affect the FX markets?
Financial markets and FX markets being part of that sector are always affected by 3 main factors .
The recent addition of security seems to have less of an impact over the years as routine and complacency have been replaced with shock and fear.
As regards Economy, this is the main driver of all financial instruments . In the U.K. The economy since 2007/8 banking crisis has actually faired quite well but the average individual has not felt more stable . The FX markets reflected this stability until Brexit.
The Brexit shock sent GBP FX pairs into super volatility with significant daily movements. This means that businesses that are dealing with any type of overseas purchase will be affected significantly . The price of those goods could fluctuate daily between 1-3% on some crazy days.
The political scenario also has a very serious impact. Today post U.K. Elections you can see GBP/ USD £/$ drop by 150 points.
Lack of stability caused lack of investment on the Macro and Micro scale. It’s important to remember that all Macro investment floats down eventually to Micro.
All of the above is great for all of the FX markets as it adds volatility and flow of deals .
In this case you have the LP – liquidity providers at the highest level . Tier 1 providing all the liquidity to the prime and prim of prime. This floats down to the A book operators at a lower level and the B book providers .
The volatility gives good price range and excellent competition in GBP pairs . This is brought about as supply and demand now and in the near future on all GBP Pairs , especially the majors is in high demand.
Historically, just like the U.K. Was stable so the currency was stable , this has all changed and probably will be like this for the next 18-24 months.
Wild moves will continue as the U.K. Battles between Left and Right. The U.K. Is a major trading partner to many countries and therefore attracts world attention .
The next move on the political front will be significant as will the GBP FX exposure.