According to RBC Capital Markets, most of the risks associated with the December 12 early Parliament elections in the UK indicate that the pound is somewhat overbought.
"Market participants appear to be pricing in a high probability of the Conservative party gaining a majority in the new Parliament, with the pound reflecting the market's strong preference for this result," the experts said.
"However, there are many different uncertainties around this result. In particular, the Brexit Party may not keep its promise not to dispute places previously given to the Conservative Party," they added.
"In order to take away the majority from the Tories, which everyone expects, Labour will have a strong enough performance in only a small number of districts," RBC believes.
MUFG strategists adhere to a similar point of view, who believe that until the outcome of early elections in the UK on December 12 becomes clear, the risks for the pound are shifted downward.
"Market optimism about breaking Brexit's impasse has allowed the pound to ignore the latest weak data on inflation, economic growth and retail sales in the UK, but traders should not calm down. After weaker than expected growth in British GDP in the third quarter, another surprise in terms of a possible depreciation of the pound sterling could be increased pressure on the Bank of England to reduce interest rates next year," they said.
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