Should the Tories win this week, we expect GBP/USD to move into the 1.34-35 area and EUR/GBP to drop to 0.82/0.83 levels. The main event of the week for sterling is the general election on Thursday. The market is currently partly pricing in a Conservative victory (the final election debate last Friday and recent polls continue to point to such an outcome), with our short-term final fair value model suggesting a more than 2% Brexit resolution premium currently priced into GBP.
Should the Conservative party gain a majority, we expect GBP/USD to move into the 1.34-35 area and EUR/GBP to drop to 0.82/0.83 levels. Conversely, a hung parliament would lead to a full pricing out of the GBP Brexit resolution premium, a rebuilding of sterling speculative shorts and GBP/USD likely dropping to 1.28 (and EUR/GBP rising above 0.8600 this week).