Traders’ Hit Snooze on Sterling as Conservatives and Labour Go Head-to-Head

It’s been quite the roller-coaster ride for British Prime Minister Theresa May, and it hasn’t got any easier since she called an early general election. With polling day set for June 8, all eyes are on undecided polls. They initially predicted a Conservative win with a 100-seat majority for the Prime Minister early in April, but a strong come-back from Labour leader Jeremy Corbyn has called that into question.

All this uncertainty has had an impact on the Pound, with the currency failing to break above the USD 1.30 point in the last 11 months since the Brexit green light. Even though Prime Minister May’s surprise announcement of an election pushed the pound to six month highs, that glory was short-lived and further affirmed investors’ dwindling attention.

FXTM’s VP of Corporate Development and Market Research, Jameel Ahmad, stated that: “Traders are cautious of the currency. The public has lost its faith in polling data since it failed to call the UK Independence Referendum and the American Elections, this uncertainty is reflected to some extent in the currency markets.”

Currently, May holds 330 seats. The SNP hold all but three of the Scottish seats and have a bigger voice in Westminster than any Scottish party before them. Even though the Labour party is putting forward its least popular leader in decades, a surprising turn of events has narrowed the gap between May and Corbin and the race has become a nail biter. May had hopes of winning seats from both SNP and Labour and increasing her majority. The markets surged in early April in response to her confidence. Now that Labour has narrowed the Conservative’s majority, Sterling has fallen against both the USD and EUR, creating the sense that a larger majority from the Conservatives side might be what investors need to restore faith in the flagging Pound. Everyone is asking if another Trump card will be played.

“Figures from the first quarter regarding the UK’s economic growth left a lot to be desired, especially in comparison to EU competitors, who have reason to feel optimistic,” adds Ahmad. “Usually, a recipe like this is exactly what the currency markets are looking for, however, the upcoming general election could have a two-fold impact, and any upsides in the Euro could weigh down Sterling.”

May has held a strong position on Brexit since the very beginning, and a formal negotiation table does have the potential of a smooth transition process and subsequently smoother markets. Currency markets have always fancied left-leaning parties that taxed and spent a lot more, but with the outcome still up in the air, uncertainty is the theme that will be surrounding Sterling for the foreseeable future.

With the pros and cons constantly swinging from one side to another, it’s no surprise that traders are avoiding Sterling as the outcome of the elections and all subsequent plans for the Brexit have turned the currency markets into a boiling sea of uncertainty, the election should calm the waters slightly– at least in the short term.