The pound was boosted on Monday as the Conservatives have a healthy lead in the polls, increasing the likelihood that Boris Johnson’s withdrawal deal will be passed through Parliament before the January deadline. Yesterday saw the release of a poll that shows the Conservatives extending their lead over Labour to 10 points. As a result, the market is now moving to price in the likely outcome of a majority for Johnson.
However wild price swings are still expected, with spreads between one-month and two-month maturities at their widest levels since the June 2016 Brexit Referendum vote. The implied volatility gauges for sterling jumped to more than 11%, nearing doubling from levels of 6% earlier this month. The nature of this general election means traders are bracing themselves for the unexpected. Positions against the pound also fell to the lowest levels since May, meaning that the pound now has more potential to appreciate on good news than depreciate on the bad.