GBPUSD Expects Heavy Volatility, Equities Indifferent to UK Election
• Short-term implied volatility for GBPUSD is at its highest level in 5 years ahead of the election
• This election looks as if it may be one of the most convoluted in decades
• A disinterested capital market and clouded view may make the play on volatility for Pound the best option
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Compared to the UK employment data or even the BoE Quarterly Inflation report, the UK election carries a vague fundamental threat for the Pound. Rather than a black-or-white outcome whereby the speculative masses can agree to a 'bullish' or 'bearish' scenario to the vote, there is a disconnect from results to market reaction. Furthermore, the opinion polls heading into the ballot suggest this will end with wrangling for a coalition. This already convoluted event may thereby take days to be fully processed. How can we incorprate event risk that isn't expected to offer a clear impact and seems to be priced out as a low-risk threat in equities and bonds? Implied volatility itself may prove the tradable element. We discuss the UK election and its potential impact on the Pound in today's Strategy Video.
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