Just under a year after the fateful Brexit vote, sterling is anticipating fresh volatility ahead of the general elections on June 8th.
When Theresa May called for a snap election to pursue a higher majority in Parliament, investors lapped it up. The pound soared to a six-month high on hopes that she would indeed extend her majority to gain more traction within the legislature.
Just over a month later, we are looking at a very different scenario. May’s Conservative Party headed into this with a 17-seat lead, but a scandal over the so-called “dementia tax” proposing reduced financial support for some elderly voters has hurt her in the polls. Polls shortly after the release of the contentious proposal showed the Conservative lead eroded to just 9 points, and the latest polls just this week revealing that May could lose her majority entirely.
If May fails to secure a larger majority in Parliament as the polls suggest, this would introduce a whole slew of new unknowns for Brexit negotiations. Failing to secure a 326-seat majority would force the PM to align with another party to form a minority or coalition government which is more vulnerable to opposition.
We expect sterling to continue trading on these headlines, but failure to secure a lead ahead of next Thursday’s vote could be quite detrimental for the pound.
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