Written by: Simon Derrick | Chief Currency Strategist, BNY Mellon
The shock exit poll for the UK election on Thursday night led to a robust early rally for GBP as investors breathed a sigh of relief that the coming days would not see an extended period of negotiations over the makeup of the new government. A Conservative majority government is now confirmed and a 2017 EU referendum would look likely, and the Scottish National Party (SNP) may feel comfortable pushing for another referendum on independence during next year's Scottish elections. Evidence for a possible fresh referendum in Scotland emerged last week in the press following comments from the former deputy leader of the SNP.
Looking ahead the principal concern among investors will be the possibility of at least one and possibly two referenda in the UK over the next few years. Many will remember how poorly GBP performed in early September last year in the face of a potential Scottish exit from the union and wonder whether the threat of two new votes could similarly weigh on the currency. While this could certainly prove to be a factor in the shorter term (though GBP is certainly holding up well for the moment) it is worth remembering two things. Firstly that both an EU referendum or a possible rerun of the Scottish referendum would be several years in the future. Secondly, the Scottish referendum in 2014 only impacted GBP in the immediate run up to the vote despite a tight race through most of the year. In other words we suspect these potential votes will not weigh on thinking for more than a week or so.
Chief Currency Strategist, Head of the BNY Mellon Markets Strategy Team
Simon Derrick is a managing director of BNY Mellon and is head of the BNY Mellon Markets Strategy team. Simon established the team more than 10 years ago, and has guided its development into a preeminent center of excellence within BNY Mellon. His insights and commentaries have made him an indispensable source for financial journalists around the world, and his frequent on-air appearances have made him a fixture on electronic news outlets.
+1 917 309 1065