LONDON, Nov 27 — Sterling fell as much as 0.3 per cent in early London trading today after a YouGov poll showed the Conservative party’s lead over Labour narrowing to 11 points. The poll was the third in a row to show the Conservative lead dwindling before Britain’s election on Dec. 12.
The pound may also have been weakened by reports of a surge in under-35s registering to vote before the deadline at midnight last night, since young people are less likely to support the Conservatives.
The pound fell as much as 0.3 per cent against the dollar, to a low of US$1.2827, before recovering to trade around US$1.285. Against the euro, the pound was little changed, at 85.675 pence .
“So far, the market has been relatively complacent when it comes to the risks ahead,” said Thu Lan Nguyen, FX strategist at Commerzbank. “Yes, the Tories still have the lead but they’re certainly not gaining.”
Polling is not infallible, she added. Before the 2016 Brexit referendum, the side that favoured remaining in the European Union was leading in the polls, she pointed out.
The surge in young voter registrations contributed to today’s pressure on the pound, Nguyen said, but that was a temporary development. She did not expect the pound to start depreciating significantly in the run-up to the election.
“The focus will be increasingly on the polls now,” she said. “Any surprise or any big move in any kind of direction, I think, will certainly become bigger the closer the elections are.”
YouGov will release seat-by-seat predictions of the election outcome at 22.00 GMT. The multilevel regression and post-stratification model accurately predicted the 2017 hung parliament, so it will be closely watched.
“Anything other than a prediction of a significant Conservative majority would be GBP-negative from current pricing,” Adam Cole, chief currency strategist at RBC Capital Markets, wrote in a note to clients.
Pound options suggest a perceived risk of depreciation. The implied volatility premium — which dealers charge to hedge the risk of the pound falling — has grown. — Reuters
