UK: Hung parliament adds government risk premium to GBP – Danske Bank

The latest poll indicates that UK is going to have a hung parliament but the Conservative Party seems likely to form a minority government backed by the Democratic Unionist Party (DUP), which suggests that we now have a ‘government risk premium’ on top of the ‘Brexit uncertainty premium’ according to the analysts at Danske Bank.

Key Quotes

“The very slim majority makes it difficult for the new government to govern and it is likely to be put under pressure both by pro-Brexit and pro-EU forces.”

“It is difficult to say what this means in terms of Brexit. The new government at least has some thinking to do about how it will proceed with the Brexit negotiations and whether or not to adopt a softer approach.”

“Theresa May is currently considering her own position. Therefore, the Conservative Party may be thrown into a new leadership contest.”

“A second Scottish independence referendum seems unlikely at this point given the SNP’s loss of seats.”

“With respect to GBP, we now have a ‘government risk premium’ on top of the ‘Brexit uncertainty premium’. We target EUR/GBP in the range of 0.84-0.90.”