06:36 AM EDT, 07/04/2024 (MT Newswires) -- Sterling rebounded against the U.S. dollar this week ahead of Thursday's British election, said Mitsubishi UFG.

According to Bloomberg, U.S. economic data surprises have been towards the downside relative to expectations since May and it is the worst run of negative economic surprises since the summer of 2022.

In contrast, economic data releases have been surprising to the upside in recent months. U.K. gross domestic product growth in Q1 was revised even higher by 0.1 point to 0.7% q/q and the Bank of England's staff are expecting stronger growth to continue in Q2 (+0.5% q/q).

While improving cyclical momentum for the U.K. economy is helping to support sterling this year, it isn't expected to help the current government remain in power after Thursday's election, stated MUFG. The final opinion polls ahead of Thursday's UK election make grim reading for Prime Minister Rishi Sunak.

YouGov's MRP poll projects that the opposition Labour party are on course to win 431 seats compared with only 102 for the Tories. It would represent a record majority for the Labour party. Polls by More in Common and Focaldata also predicted a landslide victory for the Labour party with majorities of 210 seats and 238 seats respectively.

Financial market participants appear comfortable with the prospect of the Labour party winning a large majority which should limit the market impact for sterling from Thursday's election, pointed out the bank. The Labour party's pledge to prioritize economic stability and respect fiscal rules is curtailing nervousness over the risk of looser fiscal policy and a loss of confidence in sterling.

On the other hand, investors will welcome greater political stability in the U.K. and the possibility of an improvement to the Brexit trade deal that could support sterling, according to MUFG.