The performance of the pound in the past few weeks has been somewhat mixed to say the least, and while it did get a broad lift in the aftermath of the initial election poll announcement on 18 April, its performance since then has been particularly underwhelming.

While it still remains higher against the US dollar and the Japanese yen, it has underperformed against the Swiss franc and the euro, which would appear to suggest that currency traders seem less concerned about the politics of the UK than they do about future central bank policy.

The gains in the euro can be explained by the improvement in economic data in Europe against a European Central Bank that may well look at revising its guidance on the European economy when it meets tomorrow to set interest rates.

It is certainly true that the narrowing of the opinion polls has caused some short-term volatility and served to limit the upside, and much has been made of this due to the lacklustre and quite frankly dreadful Conservative party campaign; but even without that, given how the opinion poll ratings for Theresa May were before the election was called, there was always the prospect that further upside was likely to be fairly limited.

Conversely expectations around Labour leader Jeremy Corbyn were so low that you would have had to struggle to even limbo under them.

This perhaps helps explain why sterling upside has been so limited in that there was always the probability that he would do much better and so it has turned out. If anything the election has shown Jeremy Corbyn’s strengths and Theresa May’s weaknesses, but the key question will be whether it will change the potential outcome of what is to be expected a Conservative party victory.

Looking at the currency markets the answer to that question would appear to be no, despite YouGov continuing to predict that the Conservatives would lose their majority which would not be a good outcome, throwing any Brexit negotiations into disarray, and sending the pound back down towards the 1.2500 area, and possibly lower.

One thing that does appear certain is that Theresa May will have been weakened within her party after the shambles of the campaign, and that could impact on how future Conservative policy on Brexit gets shaped.

Nonetheless, even if she doubles her majority, the status quo will have been maintained and the pound may well get a decent lift back to the recent highs at 1.3040, with a majority in excess of 50 seats potentially pushing us up towards the 1.3300 area.

 

Heightened market volatility is likely over the election period, which could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.