Sterling hit its highest level against the dollar in almost two weeks, before easing slightly, buoyed by investor expectations that the Conservative Party would be victorious in tomorrow’s general election and would probably win a majority of parliamentary seats.
The pound has tended to react positively to signs that UK prime minister Theresa May’s party would win the snap election since she called it seven weeks ago, as investors bet that a strong majority would translate into a better bargaining position in exit talks with the EU, which begin this month.
However, after hitting eight-month highs above $1.30 in mid-May, sterling fell to as low as $1.2770 by the end of the month, as polls showed the race tightening between the Tories and the Labour Party.
It has since recovered, climbing back above $1.29 on Monday after an ICM poll showed the Conservatives with an 11-point lead over Labour. While that was down from a 12-point lead in the same poll a week earlier, it was a wide enough margin to soothe investors’ nerves over the possibility of a hung parliament.
Another poll later on Monday put the Conservatives’ lead at just one percentage point, but other polls have put it as high as 12 points. Against the euro, sterling was up 0.2% at 87.06p.
“When you’ve got a poll that shows an 11-point lead three days before the election, that’s sizeable,” said ING currency strategist Viraj Patel. “If the polls were really tight — all of them, consistently — then you would have more uncertainty. But the balance is now tilted towards the view that we’re going to get a Conservative majority, so now it’s just a question mark of the size of that majority.”
Meanwhile, European shares extended their fall, with healthcare stocks particularly weak, as a diplomatic spat in the Middle East weakened appetite for risky assets across the board. The pan-European Stoxx 600 benchmark dropped 0.7%, falling for a second session, while eurozone stocks followed suit. The greatest downward pull came from healthcare stocks.
Swiss heavyweight drugmaker Roche fell 5.5%, its biggest one-day drop in 30 months, after investors were disappointed by findings in its Aphinity study for a key breast cancer treatment.
Utilities were the best performers, up 0.6%, as investors fled to safety.
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