Risk premiums for Sterling feels a bit low

Heading into the UK general election, risk premiums seems on the low side.

Even though 1-month risk reversals for GBPUSD has pushed lower, the recent fall has more to do with political risk in France as well as the BoE’s policy decision.

It would seem that markets are surprisingly calm with pricing in risk for the election.

Even though a labour victory has been seen as the favourite in polling, the Reforms have started to see some noticeable upside in the YouGov voting intentions poll (seen below).

Should the support for Reform UK continue to build into the runup of the election, I would expect risk premiums to increase as a bigger-than-expected share of the votes going to Reform would arguable cause increased uncertainty.

Something to keep on the radar over the next few days.

This article was written by Arno V Venter at www.forexlive.com.