Pound Falls on Tighter Polls as Traders Wake Up to Election Risk

• Pound Falls on Tighter Polls as Traders Wake Up to Election Risk

The U.K. election just got interesting for pound traders.

Sterling fell against all of its 16 major peers on Friday after a poll showed the Conservative Party’s lead over the main opposition Labour Party has narrowed to five percentage points with two weeks to go until the June 8 election. That comes after weeks of surveys showing a bigger Tory lead had made the vote all but a foregone conclusion for the market.

“We’re potentially in the trouble zone,” said Neil Jones, head of hedge-fund sales at Mizuho Bank. “Sterling correlates well with anything that shows a Tory majority and vice versa, so if you’ve got this situation where the majority closes right down, it may come to a critical level where it may not have a sufficient number of seats in the house. The market doesn’t like that.”

The YouGov Plc poll feeds into a souring atmosphere for the pound with the U.K. terror threat remaining at “critical” levels following the Manchester attack and disappointing growth data for the economy Thursday. An index compiled by YouGov and the Centre for Economics and Business Research also indicated consumer confidence fell this month to its lowest since Brexit.

While the latest poll was conducted after the Manchester terror attack, the Tories’ narrowing lead was more likely to have been caused by a row over an unpopular policy on elderly care, Anthony Wells, a research director at YouGov, told the Times newspaper. Most previous surveys had given Prime Minister Theresa May a lead about 10 points or above.

If the swing to Labour were uniform across the country, May would lose seats in the House of Commons, with the Tory majority falling to two from 17, the Times said. Such a result would trigger a further sell-off in the pound, according to analysts. Questions still hang over the accuracy of British polls, after surveys failed to predict a Tory majority before the 2015 election.

The pound fell 0.6 percent to $1.2872 as of 11:20 a.m. in London, having touched $1.2858, its lowest in two weeks. Support for the currency lies at $1.2845, the May 12 low.

• Conservatives at 43%, Labour 38%, LibDems 10%, Ukip 4%, in YouGov/Times poll
  • Previous YouGov poll had Conservatives at 44%, Labour 35%
• “GBP is likely to continue to be under pressure now until the election is out of the way if polling continues to indicate it’s a tighter race,” Jordan Rochester, a foreign-exchange strategist at Nomura International, wrote in a note to clients. “The worst outcome is if we have further uncertainty with the chances of a hung parliament”
• Sterling sell stop-loss orders were triggered in Asian markets, said traders who asked not to be named as they aren’t authorized to speak publicly
  • A Telegraph report suggesting that the Manchester suicide bomber may have distributed more explosive devices also added to selling pressure, they said