Despite the prospect of the UK General Election almost certain to result in a hung parliament, the markets have been relatively undeterred by the potential outcome in the past few days, however tension seems to be building with a weaker pound this morning. The outcome will not become clear until the early hours of tomorrow and even though the polls have consistently pointed to no clear winner, the huge amount of undecided voters could still tip the balance, you only have to look at the inconclusive polls in the run up to the 1992 election and subsequent decisive result. The first landmark to watch out for will be exit polls due for release shortly after 10pm UK time, which in the past two elections have proved to be quite precise, however this time round the race is so close, their accuracy will be in question.
But for the markets, it is the very fact that the result is so uncertain that investors are yet to make their mind up as to how to position themselves. As we go through the night and the picture becomes clearer there’s plenty of potential for volatility to pick up, especially since volumes will be thinner during the overnight session.
As mentioned for now sterling is a little on the softer side with GBPUSD hovering around 1.5200 and EURGBP marginally higher at 0.7465 (1.3390 for GBPUSD), meanwhile the FTSE 100 has commenced its session on a cautious note. The bias is to the downside for the pound as we go through the day with the greater risk from around 1am UK time as the results start to be revealed in full flow. If the polls turn out to be right then we could see a far messier situation than five years ago and negotiations could go on for longer than the five days it took for the previous Coalition to be formed, making the next few days a bit of a roller coaster ride for UK markets and investors.