Irish exporters into the UK could see the value of sales soar or sink depending on the outcome of the December 12 election, HSBC has warned.
Importers from the UK face the same unpredictable currency environment, a potential re-run of the volatility seen after the June 2016 Brexit vote, as the outcome of the general election could possibly dictate wildly different directions for the pound.
“Anything can happen” at the polling stations, according to analysis by the UK’s biggest bank. An election result paving the way to a Brexit deal with the European Union could send the pound up about 12pc to $1.45 by the end of next year, David Bloom, global head of foreign exchange strategy at HSBC, said in an interview with Bloomberg Television.
A result that points to a no-deal Brexit could see sterling tumble 15pc.
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“Nothing is priced in,” Mr Bloom said. “The political outcome will determine the future of the currency.”
His comments contrast with traders’ confidence in sterling, fuelled by polls suggesting the Conservatives will defeat Jeremy Corbyn’s Labour Party and secure a Brexit deal.
The pound is hovering near a six-month high against the euro, while traders are confident prime minister Boris Johnson will maintain his lead, a gauge of expected large moves in the currency suggests. “It looks like a Conservative majority but it’s not that simple. It’s quite a complicated set of circumstances and it’s still completely open; anything can happen,” Mr Bloom said.
Sterling steadied at $1.2952 yesterday, and held steady against the euro at 85.45 pence.
The pound has led gains among big global currencies so far this quarter, rising 3.8pc against the euro and 5.4pc against the dollar.
Any resolution is good, Mr Bloom said, whether it be another referendum or a deal. Political wrangling will start to ebb away, the economy could get a fiscal boost and the Bank of England may start considering rate increases. The reverse could see recession fears flare.
Most currency strategists now see a Conservative majority as the best outcome, as it would enable Mr Johnson to push through his deal in time for the January 31 deadline, avoiding a crash-out Brexit.
They see an outright win for Labour damaging the pound, as Mr Corbyn could ramp up public spending, nationalise utilities and increase taxes for the rich, raising the risk of capital flight.
A hung parliament – where neither the Conservatives nor Labour get a majority – would be the worst for the currency, Mr Bloom said.
In that case, there would be no majority of lawmakers in favour of a fresh referendum on Brexit, nor favouring any specific deal. He said “we could be back in the mud” and “lost in the wilderness”.
Additional reporting Bloomberg
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