With the general elections approaching in Great Britain, the London-based center of global financial services has important considerations to bear in mind.
TopFX VP of Business Development Paul Orford takes a look at what may happen should the current government remain in office and the potential changes that could occur should the opposition gain victory.
Will turkeys vote for Christmas?
In an industry which lives in fear of the flat market, the next story to tell is the potential for impending volatility in GBP pairs.
With only several weeks until the general election, neither of the two largest parties can form a significant lead over the other. With the peculiarities of the UK first past the post electoral system, the bookmakers are predicting what is known as a ‘hung parliament’ or a government by coalition.
The current incumbent government has been a coalition made up of the two if the most diametrically opposed parties in mainstream UK politics, the Conservatives and the Liberals. Their relationship began by the pair arguing that they had to form an agreement due to the parlous nature of the UK economy at their time of their accession to power.
With a central plank of their policy being deficit reduction (aka slashing of the state.) has this created a stronger economy for future governments to work with?
The Conservatives were asked to be judged on how they have performed in the debt reduction, and having borrowed many hundreds of billions more than previous regimes the outlook does not look great. Many critics would argue that due to the drastic cuts in public expenditure, there is not much left of the state to cut, and any further reduction would be more ideological based rather than economic.
Although one could argue that statistics show that there is a recovery underway in a quantitative sense, if you analyse the data in a qualitative sense it may appear to be consumer lead based upon PPI claims and housing bubbles.
One of my long time friends, a trader of immense experience in the Asian markets gave me his insight into how he views the GBP. Known locally as Bobby ‘the horse’ Azam, he has always seen the GBP in his terms as the ‘bulldozer’ of the majors. Bobby argues that ‘the GBP just does not care about support and resistance, it will just bulldoze every line when traders buy or sell based on the fundamentals.’
In the post election world one thing we can expect is uncertainty as the horse trading begins between the parties begins. A Conservative led coalition could perhaps see them becoming bed fellows with UK Independence Party, pushing the party further to the right both economically and ideologically, and having to deal with the complexities of having to offer an EU referendum.
A Labour led coalition based upon the Liberals and Scottish National Party would lead to more power being devolved to the Scots with the end game of a future referendum upon the union.
Whatever the result, we all know that for the next several months we will have a tremendous amount of indecision and confusion, and as many of us know this is the perfect formula for market volatility.
This is a guest editorial which was written by, and represents the viewpoint of Paul Orford, VP Business Development, TopFX.