Synopsis:

HSBC analyzes the potential impact of the upcoming UK parliamentary election on GBP, noting that historical data shows no clear pattern. They argue that despite expectations of warmer EU ties under a Labour-led government, there are limits to how positive this could be for GBP. The currency's performance is more likely to be influenced by BoE's monetary policy compared to other central banks.

Key Points:

1. Historical Inconsistencies:

   • Analysis of opinion polls and movements in EUR/GBP since the previous election reveals no consistent pattern. GBP's performance has varied regardless of the Labour party’s standing among voters.

2. Potential Labour Government:

   • Media reports suggest a Labour-led government could improve ties with the EU, which some believe would be GBP positive.
   • However, HSBC notes limits to this potential improvement, suggesting it may not lead to a significant positive reaction for GBP.

3. GBP Drivers:

   • GBP's performance is expected to be driven more by the BoE's monetary policy outlook rather than the immediate aftermath of the election.
   • Limited fiscal room and a sluggish UK growth outlook also diminish the likelihood of a strong GBP reaction.

4. Past Election Responses:

   • Historical GBP responses, positioning, and flows around past UK elections indicate no assured stronger GBP from a potential Labour victory.

Conclusion:

HSBC's analysis suggests caution in assuming a strong GBP reaction to a potential Labour victory in the upcoming UK elections. The currency's movements are likely to be influenced more by the BoE's monetary policy stance and other central banks' actions.