GBP and the election

It looks pretty clear to me that the Conservatives will win tomorrow’s election. If I was going to guess I would say that they will win with a majority of 30 seats.

Smart money has been pouring into this outcome via a long GBPEUR trade. However I think that this is now a dangerously crowded trade. GBPUSD has weakened in the last few days despite the money pouring into GBPEUR which makes me think there could be a squeeze even in the event that the election goes as expected as the promised bounce in GBP fails to arrive (as everyone and their dog are already long). There could be a really vicious squeeze if the Conservatives do not win outright. I would therefore avoid this trade in the next week. I am short GBPUSD (big) and short GBPEUR, GBPCAD, GBPAUD and GBPJPY in smaller sizes.

In the long run I am very bearish on GBP. It was only good old fashioned jingoism which kept us out of the Euro and our fiscal situation would easily have qualified the UK for membership of the PIGIUNS ® (Portugal, Italy, Greece, Ireland , UNited Kingdom, Spain). Given the disastrous fiscal and economic position of the UK I do not think that the ability to inflate our way out of default should lend support to our currency.