Pound Falls as Election Uncertainty Flares, Volatility Surges

  • Narrowing Tory lead over Labour keeps pound under pressure
  • U.K. home prices fall more, factory data maintains momentum

The pound fell versus the dollar, a day after touching its lowest level in more than five weeks, as the outcome of the June 8 snap election remains far from certain.

Rising market stress exactly a week before the vote has seen a gauge of implied volatility in the pound climb. A YouGov Plc study published in the Times on Wednesday showed Theresa May’s Conservative Party may fall short of a majority, an outcome that wasn’t on the market’s radar just a few weeks ago. Sterling declines were limited by U.K. data that showed manufacturing activity maintained momentum in May.

“Sterling is likely to remain volatile over the next week as we approach the election on 8 June,” wrote Craig Erlam, a senior market analyst at OANDA Europe Ltd. “Recent polls have shown that Theresa May’s lead has narrowed, in some cases quite considerably, which has sent the pound into a bit of a tailspin at times.” Although polls can be inconsistent, Erlam said, the “the trend does appear to be one of May’s lead shortening.”

  • The pound fell 0.1 percent to $1.2877 as of 9:46 a.m. in London. The currency touched $1.2769 on Wednesday, which was its weakest since April 21
    • 21-DMA, which was a support line earlier, has now become resistance at 1.2924 
  • One-week implied volatility for the pound against the dollar climbed above 9 percent Thursday to its highest since April 24
  • PM May was criticized for her decision to skip the TV debate on Wednesday, with other party leaders saying she was unfit to lead Britain
  • The pound was also weighed down by weaker U.K. economic data
    • U.K. house prices fell for a third month in May, the worst streak for the market in eight years, according to Nationwide Building Society
    • The report comes a day after U.K. mortgage approvals fell to a seven-month low in a sign the housing market is slowing
  • The rare bright spot in U.K. economic data came from a gauge of manufacturing. IHS Markit’s Purchasing Managers Index was at 56.7 in May, close to a three-year high of 57.3 reached the previous month
    • The reading was better than economists had forecast and keeps the index comfortably above the 50 level dividing expansion from contraction.
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