Polls leave pound floundering as election looms

With the latest polls indicating that PM Theresa May won’t emerge from the UK election with the increased majority she expected, the pound has been left languishing at multi-week lows.

GBP/EUR began the week trading between €1.1400 and €1.1431, GBP/USD brushed a low of $1.2858, GBP/AUD slumped to AU$1.7220 (down 0.6% on the day’s opening levels), GBP/NZD fluctuated on the cusp of NZ$1.8000 and GBP/CAD slipped 0.3% to C$1.7340.

How will the final few days of campaigning impact the pound? Keep scrolling to find out…

What’s been happening?

The UK general election is now just days away and Sterling is certainly feeling the effects of the latest poll results.

The Ipsos MORI poll gave the Conservatives a 5 point lead on Labour – a far smaller lead than markets had initially expected to see this close to the election.

It appears that PM Theresa May’s hopes that she would secure a greater majority (thereby strengthening her hand in Brexit negotiations) have gone up in smoke. That being said, last year’s Brexit and Trump victories demonstrated just how unreliable polling can be, so we can’t rule out a surprise outcome from Thursday’s vote.

Political concerns meant that the pound was unable to benefit from Friday’s impressive UK construction PMI, although GBP/USD losses were slightly limited after US employment data flopped.

The nonfarm payrolls report showed a far smaller rate of job creation than anticipated and disappointing wage growth numbers. Although the data is unlikely to prevent the Federal Reserve hiking interest rates in June, it could reduce the likelihood of borrowing costs being increased further later in the year.

There was nothing to stop Sterling tumbling against the euro however and the GBP/EUR exchange rate dropped to a fresh two-and-a-half-month low.

Saturday night’s horrific terror attack in London further depleted demand for the pound.

What’s coming up?

The pound could catch a break this morning if the Markit services PMI defies forecasts and shows unexpected improvement in May. As it stands the index is expected to slip from 55.8 to 55.

As the services sector accounts for over 70% of total economic output, a surprisingly strong result would help alleviate fears for the health of the UK economy and could give the pound a boost.

The GBP/USD exchange rate is also likely to experience movement following the publication of the US services/non-manufacturing PMIs and durable goods orders data.

Results which have a negative impact on bets that the Federal Reserve will increase borrowing costs this month would put the US dollar under pressure.

Of course, political developments will remain crucial to how the pound performs over the next few days. It would take convincing signs that the Conservatives are recovering their lost lead over Labour for GBP exchange rates to rally.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.