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Pound Could Drop by 2% on Election Results

Sterling would receive a post-election bounce of around 3% if British voters give the ruling Conservative Party a majority in parliament on Dec. 12 but will fall 2% if the opposition Labour Party wins a majority, a new poll found.

The pound has gyrated wildly since Britain decided in a June 2016 referendum to leave the European Union, see-sawing on any news about how the two sides would part ways after more than four decades together.

But the December election could result in another hung parliament and threaten to drag the Brexit debate past the latest deadline of Jan. 31.

Johnson is currently ahead in opinion polls.

The Labour Party plans to renegotiate Brexit and put the revised deal to a new referendum, something which could take months and lead to increased market uncertainty.

Britain’s pound hovered near a one-week low versus the dollar this morning as the market temporarily shifted its focus from next month’s parliamentary election to a Bank of England policy meeting.

With a snap election due on Dec. 12 and a new Brexit deadline set for Jan. 31, the BoE is expected to keep its key policy rate unchanged at 0.75% and not give an explicit steer on where interest rates are headed.

Increasingly economists believe the BoE will cut interest rates at some point next year given a slowing economy and Brexit uncertainty. Financial markets are pricing in a roughly 55% chance of a 0.25 percentage point cut in 2020.

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