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31 Mar 2015
GBP remains on the bearish side – JP Morgan
FXStreet (Edinburgh) - The stance around the sterling remains tilted to the negative side, according to analysts at JP Morgan.
Key Quotes
“Although UK markets have become somewhat accustomed to coalition government given the Tory/Liberal Democrat experience of the past five years, the May 7th general election will probably deliver something with little precedent: a minority government, since no party will secure the required 326 seats to command Parliament, and since both Labour and the Conservatives would probably prefer an unstable minority government to an awkward coalition such as Labour/SNP or Conservative/LibDem”.
“Not only is the next government likely to be inherently less stable due to its requirement to seek votes on an issue-by issue basis, but who leads the next government may not be known until weeks after the election”.
“Sterling, however, reflects little risk premium around these events. EUR/GBP trades a few percent below the level predicted by rate spreads the cross should trade above fair value if it carried a risk premium”.
“The vol surface shows more of a risk premium in that the curve is kinked around the election dates, but it normalises too quickly thereafter, in our view”.
“Hence basket of short GBP positions we enter the elections with: short GBP vs. USD and EUR in options, and long GBP/AUD vs. GBP/CAD straddles”.
Key Quotes
“Although UK markets have become somewhat accustomed to coalition government given the Tory/Liberal Democrat experience of the past five years, the May 7th general election will probably deliver something with little precedent: a minority government, since no party will secure the required 326 seats to command Parliament, and since both Labour and the Conservatives would probably prefer an unstable minority government to an awkward coalition such as Labour/SNP or Conservative/LibDem”.
“Not only is the next government likely to be inherently less stable due to its requirement to seek votes on an issue-by issue basis, but who leads the next government may not be known until weeks after the election”.
“Sterling, however, reflects little risk premium around these events. EUR/GBP trades a few percent below the level predicted by rate spreads the cross should trade above fair value if it carried a risk premium”.
“The vol surface shows more of a risk premium in that the curve is kinked around the election dates, but it normalises too quickly thereafter, in our view”.
“Hence basket of short GBP positions we enter the elections with: short GBP vs. USD and EUR in options, and long GBP/AUD vs. GBP/CAD straddles”.