GBP has strengthen to the announcement of a July 04 General Election, reaching multi-week highs against the EUR.  GBP gained momentum yesterday as the likelihood of a Labour Party victory in the July 4 UK general election increased from 70% to 90%, according to the latest bookmakers' odds. The GBP/USD pair surged past $1.28 for the first time in nine and a half weeks.

However, analysts caution that the currency could become unstable if Labour's substantial lead in the polls diminishes.  The rationale is straightforward: the Pound favours certainty, and the current strong lead for Labour in the polls provides that. If the Conservative Party narrows Labour's lead, the election outcome becomes less predictable, prompting investors to brace for potential volatility in the Pound around July 04.

Currently, the Conservatives trail Labour by about 20 points in the polls, but this gap could close as the campaign progresses. The experience of former Prime Minister Theresa May in 2017 illustrates how a significant poll lead can vanish during the campaign. The most turbulent scenario for the Pound would be a 'hung parliament,' where no party achieves a majority, necessitating coalition negotiations and creating uncertainty over future economic policies.

Goldman Sachs, in its weekly currency note, suggests that the UK general election is unlikely to have a major short-term impact on GBP. It points out that Labour's 20-point lead in the polling averages and limited fiscal space in the upcoming Autumn Statement reduce the potential for immediate policy uncertainty.