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GBP falls off a cliff as PM May loses her bet
USD broadly higher after UK elections
The outcome of the UK general election was quite a surprise as the market was broadly anticipating a victory for the Conservatives. Investors had bet heavily that Theresa May would have been able to reinforce her party's support in the House of Commons. Clearly this is definitely not going to happen.
Against such a backdrop, the pound suffered a sell-off with GBP/USD falling as low as 1.2636, down roughly 2% from yesterday. In fact, with the exception of the New Zealand dollar, all G10 currencies moved in negative territory against the greenback. The dollar index rose 0.45% to 97.36 as the single currency slid 0.20%, the Japanese yen fell 0.30 and the Canadian dollar edged down 0.10%.
We maintain our view that the dollar has been oversold, especially after the ECB reiterated a dovish stance yesterday and the political jitters surrounding James Comey’s FBI dismissal in the US seemed to be a non-event. We expect the USD to get some colour back as investors cut their bullish bet on the EUR and risk aversion is eased.
Switzerland: Safe haven pressures expected amid UK results
That was a surprising result in the UK, Theresa May has lost her bet and did not win a clear majority. Her plan fell apart. A few weeks ago, markets had expected a large Conservative victory. But over the last week, the trend was rather negative for May and Labour leader Jeremy Corbyn’s result overcame expectations.
Now we wonder how this result will impact the Swiss franc in particular. What can be said is that there are more upside pressures on the Helvetic currency. Indeed, negotiations between the EU and the UK that should start next on June 19th promise to be tense.
This is especially because of tensions betweens the ‘hard' Brexiteers and the ‘soft' Brexiteers. European political uncertainties should prevail and no one could really say at the moment what the future UK exit package will look like. We anticipate in the medium-term more move towards the CHF.