Pound falls on election polls

Sterling fell yesterday after an opinion poll showed the Conservative Party’s lead is narrowing before the British election next month.

Prime minister Boris Johnson’s Conservatives have held an often double-digit lead over the opposition Labour Party in the polls for weeks. Hopes that a Johnson victory would end over three years of uncertainty over Brexit have lifted the pound, despite concern about any no-deal exit from the EU.

A Kantar poll showed Labour had squeezed the Conservative advantage to 11 points from 18 over the past week. The poll was the second in two days to show a narrowing of the lead. An ICM poll for Reuters had given the Conservatives a seven-point lead, down from 10 points a week earlier.

Sterling slipped 0.4% to $1.2835 and was down around 0.5% against the euro at 85.77p. The British currency extended its drop in late London trading likely down to the UK finance minister announcing that the Conservatives would hold an inquiry into Islamophobia within its ranks, according to Jane Foley, senior strategist at Rabobank.

Ms Foley said sterling had heightened sensitivity to comments that the market would normally ignore because investors had cut their short positions on the pound in recent weeks and as the general election was just a little over two weeks away.

Earlier, the UK’s chief rabbi wrote in the Times that Labour leader Jeremy Corbyn was unfit to be prime minister because he had failed to stop anti-Semitism “sanctioned from the top” in his party.

Despite its broadly downward trajectory in the last week, sterling has only depreciated a little over 1% from its October rally and is up 4.6% so far in the fourth quarter. Most analysts say the pound is gaining on signs the Conservative Party is headed for victory on December 12. “The pound has strengthened as a reassuring Tory majority would mean the risk of hard Brexit is small while avoiding political lock-ups in parliament and getting a growth-oriented economic policy,” said SEB strategist Lauri Halikka.

“A Labour victory would certainly give a softer Brexit but also very radical socialist policies, which few believe would be good for the pound,” she said.

Expectations of a Conservative win, with a decline in the threat of a Brexit without a deal to smooth the transition, have pushed sterling up nearly 8% since early September.

Reuters