With the pound sliding below $1.29 against the dollar and at a two-month low against the euro, uncertainty over the outcome of the election is beginning to trouble the markets. In April when the election was called, a Conservative victory appeared all but secured, providing the government with a strong mandate to move forward with Brexit plans for negotiations, while also providing analysts more certainty as divorce proceedings with the EU got underway. Now, the very real possibility of a Labour victory with two weeks before polling day, however unlikely, raises the prospect of further disruption for analysts and a return to volatility in the pound as a new government determines the Brexit process.
Whilst the pound has been able to remain steady in face of the week’s tragic events and disappointing data, it is clear that the election is the most powerful driver behind the UK’s currency. The next two weeks could see more volatility for sterling as polling figures in the run up to the election become more frequent. Analysts will be looking for any definitive signs that the Conservatives can win the election before the pound can consistently return to the levels seen recently.”