For FX traders, the big day has finally arrived. With FX volatility nearing all-time lows, Britons will head to the polls on Thursday in the first general election since 2017.
As the chart below shows, the results of this election could have profound implications for the British currency.
In a sign that few traders are betting on a sure thing, cable risk reversals show hedging activity has hit its highest level since the EU referendum in June 2016.
For ordinary Britons, the big day marks the culmination of a five-week campaign that has left many exhausted from overexposure.
One truck driver who spoke with the AP wearily expressed his frustration at the British political establishment.
“Basically I just want it over and done with now,” he said. “Nobody’s doing what they said. Everybody’s lying.”
Compared to its US equivalent, the House of Representatives, there are a lot of delegates in the House of Commons. British elections are decided by the outcomes of races in 650 districts. Most won’t change hands. Only 70 did in 2017, and 111 in 2015. But, as Bloomberg explains, “it’s the ones that do that determine who governs.”
Unfortunately for traders in Europe, that won’t begin to take shape until early tomorrow morning. According to Bloomberg, most of the early reporting districts have safe majorities. But an exit poll will be released as soon as voting ends, giving traders an idea of whether the Tories secured a clear majority, or whether the final total will be close.
According to the FT, Johnson pleaded with voters on Wednesday night to deliver a decisive majority for the Tories, which would allow the PM to take Britain out of the EU in January and start the task of negotiating a new trading relationship with the 27-member bloc.
Johnson has based his campaign on a promise to improve Britain’s position in the world. He has promised to establish a looser relationship with Europe and closer ties with President Trump’s US. Meanwhile Jeremy Corbyn, the leader of the opposition Labour Party, is pushing an agenda that has been described as socialistic.
“If we can get a working majority, we have a deal, it’s ready to go,” Johnson said Wednesday as he watched pies being baked at a catering firm in central England. “We put it in, slam it in the oven, take it out and there it is – get Brexit done.”
Polls have shown the Tories with a clear lead, though that has apparently narrowed in recent weeks, with a poll released late last night revealing that a hung parliament – ie a situation where no party wins an outright majority – is still a possibility.
There has been an unprecedented get-out-the-vote effort in the UK during the five-week campaign, which is one reason analysts have warned that the polls should be taken with a grain of salt.
A YouGov survey using modelling that was successful in predicting the result of the 2017 election showed on Tuesday that the Tories were on course to win 339 seats, Labour 231, the Liberal Democrats 15 and the Scottish National party 41, during the upcoming election. That would suggest a Tory majority of 28, down sharply from the 68-man majority predicted in an earlier poll.
Corbyn is offering old-school socialism, including a big expansion of the state, the nationalization of industries including water, energy, rail, broadband and postal services, and hundreds of billions of pounds of extra borrowing. Labour has relied on a message claiming this is the “most important election in a generation” to try and turn out as many young idealists as possible (take a look at the Guardian for more Labour messaging on display).
During the campaign, the Tories have targeted a type of voter known as the think-tank approved “Workington Man.” Voters who meet this characterization are defined as “typically older, white, non-graduate male” from a northern town. The man is named after Workington, a town on the UK’s west coast.
The town has taken on outsize importance because it’s one of the first constituencies to report in the UK’s “Wall of Red” in central and northern England. Traditionally Labour-supporting, Johnson must break through and lead the Tories in these districts to victory if he hopes to secure a wide ruling majority.
As Thursday morning wore on, the pound extended its losses to trade down 0.6% at $1.3116 before paring declines. Analysts blamed the drop on a rebound in the dollar, bolstered by comments made during Christine Lagarde’s first press conference as ECB president.
On the other end, EUR/GBP climbed 0.7% to £0.8491, looked set to climb third day.
For a rundown of the most important districts and when to expect results, see the chart below: