GBP/USD has dumped hard and the gamble has not paid off for May exit polls show

GBP/USD has dumped on the back of the Exit polls that were released shortly after 10pm BST.

GBP/USD had been in a 1.2754-1.3049 range since the rally from 1.2513 and the announcements for a snap election back on the 18th April, with markets pricing in a 20 point Conservative victory atthe time. The polls narrowed tremendously and sterling has been awaiting this result ever since the annoucement was made. 

The outcome was now as expected and this will be a long night now.

The Conservatives are shown to have won less of a majority than Cameron had done in 2015 at just 314 and below Camerons 331.  

Its now down to 20 seats eather way. PM May needs 20 more seats to avoid a hung parliament. 

Most expected GBP and UK assets to rally in case of a Conservative victory, regardless of the size of the victory, as it would remove one source of uncertainty. However, if this exit polls is right, the gamble has failed.

The breakdown is as follows:

It now all depends on the declerations.

Sterling scenarios on exit polls and swing states if exit poll not conclusive.

Conservative victory with Absolute Majority (Scenario 1) - A Conservative victory with an absolute majority should be supportive initially for the pound. Stock markets would be relieved on the lower corporation tax outlook and a risk-on environment could be the expected outcome. However, with a focus on Brexit and PM May's hardline - "No deal is better than a bad deal" - approach to the negotiations, a hard Brexit outlook could equate to a bearish scenario to the pound eventually - (Note: Remain cautious of a 'buy the rumour sell the fact' trade - a Conservative victory is virtually priced in).

Conservative victory without Absolute Majority (Scenario 2) - With the narrowing of the polls and a trend that has been continuing, the possibility of a hung parliament should not be ruled out, (When no party has won enough seats to have a majority in the House of Commons). Such an outcome could be highly bearish for the pound due to the uncertainty for markets to deal with. However, in a hung parliament, the incumbent prime minister stays in office until it is decided who will attempt to form a new government - this could support the pound after an initial sell-off. (Note: A hung parliament does NOT necessarily mean a coalition government). 

Laborist victory (Scenario 3) - A balanced outcome for the pound with initial volatility on the basis of Labour’s manifesto. Initially, a lower pound could be the immediate outcome bias due to increased uncertainty and a reduction of inflows. However, a Labour victory should mean a softer Brexit outlook and austerity would be removed, (Fiscal easing lifting growth and inflation expectations). Higher real yields may offset the initial weakness in the pound.

NOTE: in 2015, GBP/USD rallied hard on exit polls then flat during declarations:

It is worth noting, that with the anticipated outcome, in 2015, the exit polls triggered a 250 pip rally in sterling and then the market was flat for the rest of the declarations. This, however, will be a different game.

GBP/USD levels

Further levels for the election results on the wide are 1.3122, 26th June low (post EU referendum immediate low), 1.3270, 1.3374 and 1.3429. To the downside, 1.2780, (post EU ref low) 1.2750 and 1.2600. Pressures here now point to below 1.2775 that will trigger losses to a potential 1.2609/1.2582, the 100 and 200 day mas and the 1.2366 the 10th April low.