GBP/USD Rate Might go to 1.30+ on big May Win say Citi

The Pound to Dollar exchange rate is tipped to breach 1.30 should the Conservative party achieve their aim of growing their majority in parliament..

Market consensus currently has it that a strong win for May will smooth the all-important Brexit process for Sterling, but that consensus has been questioned of late by polling data which suggests no party will gain a commanding majority.

But analysts at CitiFX are bullish on the ruling party's chances.

“We expect the Conservative Party to have a overwhelming victory, which may underpin GBP despite rising volatility, say CitiFX in a brief to clients. “Whether the Conservative Party can expand its advantage is significant for Brexit procedure. Markets are focusing on this election. GBP volatility may increase in the short term.”

Citi are forecasting the Conservative to win at least 109 seats, with 190 seats being the upside limit.

On the back of such an outcome, “GBP/USD may rise to 1.3048, with support at 1.2769,” say Citi.

However, if they are wrong if the Conservative party loses their majority.

“GBP/USD may drop to 1.2706 or even 1.2615,” say Citi as they see such an outcome increasing Brexit uncertainty.

Weak Conservative Majority = Strongly Sterling Negative While CitiFX are confident that the Conservatives should walk away with the election, we get the sense that if the recent trajectory in opinion polls carries through to election day the Conservative majority could end up being less than 50 but above the current 17. 

This is a "strong Sterling negative" according to Oliver Harvey at Deutsche Bank.

In such a scenario, May is likely to retain power, but without the majority needed to conduct negotiations effectively.

"The influence of hard-Brexit MPs over looming issues such as the divorce bill would be large and the chances of reaching a deal with the EU low," says Harvey with both eyes on upcoming Brexit negotiations.

The purpose of an early general election would have been negated, and the starting point of talks would be worse given the ramping up of rhetoric with the EU27 during the election campaign.

"Significant economic weakness and/or market pressure would once again be required to secure a transitional deal, or the UK would crash out of the EU in March 2019," says Harvey.