Danske FX Strategy Research argues that going into the UK snap election on June-8, there is NO case for GBP weakness driven by the election risk premium. Danske outlines 2 reasons behind this call.
“First, this general election is very much about Brexit and as a large Brexit risk premium is already priced in the GBP and the GBP is already undervalued, a re-pricing of the Brexit risk premium points more towards a somewhat stronger GBP .
Second, investors are very short GBP following the EU referendum last year. We think that GBP short covering driven by heightened uncertainty should at least mitigate a GBP risk premium ahead of Election Day,” Danske argues.
Hence, Danske does not expect GBP to suffer going into the election due to an increase in risk premium.
Source: Danske Bank Research
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