Sell any GBP/USD rallies – Rabobank

FXStreet (Barcelona) - The UK election scenario is expected to keep GBP pressured, and even if US data disappoints the pound will still remain a sell on rallies, explains Jane Foley, Senior Currency Strategist at Rabobank.

Key Quotes

“Currently bookmakers’ odds are suggesting a 7/4 chance of a labour minority government and 11/4 against a Tory minority government after the May election. There is risk that the UK may have to wait a worryingly long period before a coalition is formed and depending on its composition, there might then be a referendum in 2017 regarding the UK’s position in the EU.”

“Ahead of the May 2010 UK general election, there was also a high level of uncertainty about the composition of the government though sterling did not seem to be particularly concerned, finding itself as the third best performer among the majors on a 1 mth view at that time. The fact that the “business friendly” Tory party were then in the lead in the polls may have lent solace.”

“In addition, UK economic data were improving bringing hopes of economic recovery which, in the event, did not sustain.”

“We would argue that this election has the capacity to create more downside pressure for GBP.”

“Firstly, opinion polls have not been universally showing that the “business friendly” conservative party is in the lead.”

“Secondly, the ‘business friendly” tag is confusing since if the next coalition is led by the Tory party this will bring a referendum on EU membership, which could worry international investors.”

“On almost all outcomes of this election the uncertainties for investors could rise.”

“While the USD could suffer a setback this week if US corporate earnings and economic data disappoint, we would favour selling cable on rallies near-term.”