Investors predicting a sterling rally if there's a full-blown split in the U.K.'s opposition party are likely to be sorely mistaken.
The U.K.'s Labour party has leaned increasingly to the left since veteran politician Jeremy Corbyn took the reins in 2015. Many currency experts have warned on his policies, saying they fear a Labour government would be more negative for sterling than any disastrous Brexit outcome.
Seven Labour lawmakers (out of 256) split from the party on Monday citing its direction on Brexit, as well as a failure to address anti-Semitism in its ranks. There is now natural speculation that more could follow, ripping a gaping hole in the U.K.'s second-largest party.
While this might diminish Corbyn's chances of being prime minister, a sterling surge is not guaranteed.
"Perhaps at the margin you could argue it's GBP positive ... But a Labour split would not necessarily mean that a single party has a chance of forming a stable government in the event of a snap election, and that is also a factor GBP bulls need to be wary of," Stephen Gallo, the European head of foreign exchange strategy at BMO Capital Markets, told CNBC via email.
Gallo's hypothetical argument is that a snap election this year — if the Brexit negotiations are indeed prolonged — could also mean a split in the Conservative Party with its own Brexit rebels showing frustration at the current management.