Sterling might take longer than in 2010 to recover from a sell-off
The past is not always a good guide to the future, but historical comparisons have their uses if correctly interpreted – no mean feat. With that in mind, Kathleen Brooks, Research Director at Forex.com, looked back at how sterling behaved versus the US dollar back in 2010. In the month prior to the elections on 6 May it weakened by roughly 600 pips to 1.47 and then dropped below 1.45 on the day following the outcome –as the reality of a hung parliament hit home. By the time of the coalition announcement it was back at 1.50, a mark it touched briefly. It then weakened to 1.4231 by 20 May yet recovered to 1.56 by 31 December of that year. This time around sterling has strengthened in the run-up to the electoral contest, so a sell-off in the pound could be sharper.
As well,"If the pound does sell-off on the back of a hung parliament this time round, just because a coalition is formed does not mean that the pound will recover. It could take even longer this time round for a recovery in the pound to take hold due to some idiosyncrasies with this election including: an EU referendum if the Tories get into power, and a potential Labour coalition with the Scottish National Party," Brooks added.