The pound is still highly sensitive to the political mood in the UK ahead of the 12th December general election. At the time of writing, the pound is trading against the euro at 1.1686. This is amidst signs that a Conservative majority is potentially slipping away according the polls.
There was widespread selling in the foreign exchange markets on Monday, with analysts expressing concern that Boris Johnson’s party is losing its popularity over Jeremy Corbyn’s Labour Party.
Pound Reacts to Hung Parliament Odds
Betfair Exchange reported that the odds of a Conservative majority have dropped below 65%, after spending most of last week around the 70% marker. The polling trends are showing that support for the Labour Party is increasing. However, as we pointed out yesterday, this seems to be mostly at the expense of the Liberal Democrats. Conservative popularity is stalling, but they are not necessarily haemorrhaging votes to Labour.
When the odds were at 70% towards a Conservative majority, the sterling to euro exchange rate was as high as 1.1765. Sterling has suffered because markets fear for a Labour-led or Labour-majority government, as the party’s perceived unfriendly business policies could see investors shift money out of the UK.
At such a pivotal political time when parties are pledging to sort Brexit out (either by stopping it all together or passing a deal), a hung parliament would mean that the UK would remain in limbo. There would potentially not be enough leave or remain MPs for a parliamentary vote on a deal, or indeed anything else, to pass. Brexit would not be resolved, and it’s forecast that the pound to dollar exchange would possibly drop back into the 1.22-1.24 range if this were to happen.
Is Labour Losing Its Heartland?
The polls are pointing to Labour gains, but they aren’t necessarily 100% reliable, as demonstrated by Theresa May’s 2017 disappointments. According to senior sources in both Labour and Conservative camps, there is relatively strong evidence that Boris Johnson’s party are actually doing better than expected in traditional Labour seats in the north and the midlands. This could be because these seats are also heavily in favour of leave, with many traditional Labour voters in these areas resentful at Jeremy Corbyn’s neutral stance on the issue.
For more GBP/EUR news or if you have a currency requirement you can get in touch with me, Tom Holian, directly at email@example.com, or call +44 (0) 1494 360 899 to discuss these factors in more detail.