Pound Sterling Soft v Euro, Dollar as Yet Another Poll Points to Hung Parliament

• Latest Rates (1-6-17):
• Pound to Euro exchange rate: 1.1456, down 0.06% on the day's opening level
• Pound to Dollar exchange rate: 1.2869, down 0.21% on the day's opening level

GBP starts the new month softer having seesawed significantly over the course of the previous 24 hours with traders taking direction from polling data in the runup to the June 8 election.

Selling at the start of the new month comes following the release of yet another YouGov poll - this being the regular weekly poll conducted for the Times - that shows the Conservative's lead is down to just 3%.

Remember this is not that infamous poll released on Tuesday which uses a new methodology.

The new poll shows the Conservative's margin is too small to even guarantee they will win the most seats, let alone a majority.

It would appear that a big part of the problem for the Conservatives is that the popularity of Theresa May has slumped while that of Jeremy Corybn has risen:

"Latest opinion polls continue to show a narrowing in the Tory lead to just 3% - PM’s May no-show in a TV debate last night won’t have helped. The prospect of a narrower Tory working majority should see GBP stay pressured into the June 8th vote. Unless UK PMI surges today, favour EUR/GBP to 0.8780," says Chris Turner, an analyst with ING Bank N.V in London.

EUR/GBP at 0.8780 equates to GBP/EUR at 1.1390.

If YouGov are correct and voters don't hand May a strong mandate on June 8 then the Pound is in for a period of great uncertainty.

Not only will the UK be without a stable Government but there is a strong chance they will not be able to attend the start of Brexit talks that begin just 11 days after the election.

If the Conservatives aren't in power a new team, with a new set of policies and objectives, will have to be installed.

11 days is just not enough time. The new team would likely be the spawn of a coalition government and would therefore be more likely to pursue the softest of Brexits.

This might be positive for Sterling on one dimension, but domestic uncertainty will be the new thorn in the side of Sterling.

The outlook just doesn't seam to be getting better.

"The UK election has become the number one topic on the minds of traders given the narrowing polls, with voters having to decide between socialist and capitalist ideals. With the UK having already voted to leave the EU, the threat of a Corbyn resurgence raises the question over whether we will see two consecutive losses for the city," says Joshua Mahony, Market Analyst at IG.

Make no mistake, the theme for Sterling over coming days will be whether or not the Conservatives can extend their lead once more, or whether Labour's recovery is ongoing.

Theresa May needs to put in a blinder of a performance at Friday's question time special if she is to rescue her career, and the Pound.

Spectacular Turnaround

We saw a spectacular turnaround for Pound Sterling as markets closed out the month of May.

Having been pummelled earlier in the day by the shock result of a new YouGov poll the Pound rose from the ashes to record a stomping gain against a host of major currencies.

The likes of the Australian and Canadian Dollars were particularly badly hit but impressive gains against the US Dollar were also made.

Sterling has also done well to par its losses against the Euro too.

“Sterling is flying at month end. Some month-end positioning and new polls showing a renewed Tory lead helped lift the pound over the $1.29 handle, amid signs that trading in sterling will be fairly choppy in the coming days,” says Neil Wilson, an analyst with ETX Capital in London.

Foreign exchange markets have decided to shrug off a now infamous YouGov survey which indicated a hung parliament is the most likely outcome from the June 8th poll.

This caught markets off guard as the assumption has been the Conservatives should comfortably win, even if the margin of that win has diminished in comparison to recent expectations.

The Pound was however soon buoyed by a PanelBase poll that gives the Tories a very healthy 15-point lead over Labour.

Following on from this a Kantar poll added to the positive sentiment after it revealed the Conservative share of the vote had ticked up one percentage point in the last week, to 43%.

Sterling is now trading 1% above this morning’s lows, when it was testing levels not seen since Theresa May called the snap election in April.

Month-End Boost and Sentiment Shift

There could be other factors at play however.

“The month-end rebalancing act contributed to a very decent rally this afternoon to return Sterling to its best level since last Friday. Cable found strong bid from around 14:40 and pushed decidedly higher ahead of the 16:00 fix and that’s stopped out some of the shorts,” says Wilson.

At the end of each month global asset managers buy and sell currencies in order to balance their portfolios as it goes with out saying the value of these portfolios can be altered by moves in foreign exchange markets.

It would appear that Pound Sterling is one of the winners of this month’s rebalancing.

The analyst says bulls are finding resistance around $1.291 pretty hard to break through and at last look the rally is running out of steam a bit, although there is a chance it can drive on to $1.30 with the right tailwinds.

“The fact that sentiment can shift so quickly on a couple of polls highlights the kind of volatility and uncertainty facing investors ahead of the vote. Sterling looks set for a pretty rocky week. And from today’s oscillations it does increasingly look like the fx market thinks a strong Tory majority is Pound-positive,” says Wilson.

Others agree with the general view that the Conservative party are Pound-positive.