GBP: Priced for political perfection? – RBC CM

Analysts at RBC Capital Markets explain that since PM May called an early election on April 18, GBP is the best performing G10 currency and gains are about equal to those that have followed unexpected Conservative election wins in the past.

Key Quotes

“Markets appear to be pricing in a Conservative majority of 130–150 seats on June 8. While that, and the premium GBP carries as a result, could continue to rise, we think it more likely that both will partially reverse.”

“There is good value in positioning for this pre-election risk given very low levels of short-dated implied vol. The longer-term implications of the election are more ambiguous, and in all likelihood our calls will continue to be driven by factors that don’t change greatly as a result of the election.”