The European Parliament's elections started today in the Netherlands and the UK. Results will not be broadcast until Sunday evening when all EU counties had time to vote. In the UK, conservatives are expected to drop further with the biggest winner being the Brexit party. The Conservative party is forecasted to take a paltry 10% while the Brexit party 30%. The result will likely trigger a Conservative party leadership challenge. This sizable win in the EU will encourage Hard Brexit faction of the party that is pushing for a stronger stance towards the EU. The mounting political risk has accelerated the downside in sterling across the board. After a period of malaise, the market is now pricing in “No Deal” tail risk as a solid probability. The political backdrop suggests that PM May likely to step down should her Withdrawal Agreement Bill is rejected in the early part of June. A solid showing in EU election increases the probability of a hard Brexit PM replacement is high. With Liberal Democrats gaining in the polls the most likely scenario is a choice between a hard no deal exit and general election. Brexit uncertainty will keep GBPUSD under pressure targeting uptrend support at 1.2610.
By Peter Rosenstreich
