The GBP/USD pair updated its seven-month highs amid reports that the Conservative Party continues to hold leading positions in the election race.
Apparently, investors consider the Conservative majority following the December 12 election as the most positive result for the market.
In an effort to find a way out of the impasse around Brexit, the head of the British Cabinet of Ministers, Boris Johnson, supported his proposal in the national Parliament to hold early elections in the country before Christmas.
It is noteworthy that opponents of Johnson hope that these elections will put an end to his prime minister's career. Labour leader Jeremy Corbyn promises to hold a referendum on a new deal to leave the UK from the EU, and the Liberal Democrats, led by Joe Swinson, calls for the abolition of Brexit altogether.
The results of the pre-election polls cause the British currency to fluctuate continuously. Market participants are sensitive to them, because they are afraid of two events: Brexit without a deal and the formation of a Labour government led by Corbyn, who promised to nationalize the main industries and raise taxes for high-income citizens.
The British currency strengthens when opinion polls indicate the likelihood of a Conservative victory with a significant advantage. When they allude to the possibility of resistance from the Labour Party, the pound is reduced.
According to some experts, the British currency is underestimated, and everything indicates the possibility of its rally after early elections.
"Now all polls promise the Conservatives victory. But even if they are mistaken, as was the case in 2016, the outcome of the election may not be so bad. Even if the Conservatives win with a slight advantage and none of the parties gets the 326 seats needed to get a parliamentary majority, and Labour unexpectedly won the election, the pound still has a good chance of growth. Corbyn will have to form a government with the support of other parties, which will make the implementation of his policy impossible," said Anatole Kalecki, chief economist at Gavekal Research.
"Of course, the prospects for the pound will be better in the event of a clear victory for the Tories. The Conservatives gaining a confident majority corresponding to the latest polls will allow the GBP/USD pair to rise to 1.33 in a couple of months," said Petr Krpata, currency strategist at ING.
UBS Global Wealth Management experts continue to evaluate the pound's prospects as positive and believe that the pound could go up to $1.35 in case the Tories receive the majority.
Bank of America analysts believe that the British currency should benefit from resolving the situation with Brexit and expect GBP/USD to rise to 1.39.
Meanwhile, Rabobank experts warn that the pound could fall to $1.15 if Great Britain could not agree with the EU to conclude a free trade agreement after Brexit.
The UK will leave the EU on January 31, 2020 if the Tories get a majority in the December 12 elections, and the country's Parliament approves a "divorce" agreement promoted by Prime Minister Boris Johnson and allowing negotiations to begin on trade deals.
"In the election, it is likely that many moderate Conservative MPs will be replaced by Brexiters, which will increase the risk of inaction after the Brexit transition. This could lead speculators to hastily increase their net short positions in the pound early next year," said Jane Foley, strategist at Rabobank.
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