Sterling was knocked as markets took fright at a shock YouGov poll showing the Tories will not increase their majority but actually lose seats. The poll has created the uncertainty the market doesn't like, pushing cable to last Friday’s lows. At the $1.28 level we’re still a couple of cents above where the pound was trading before Theresa May called for the election on April 18th.

The pound has firmed up this year on hopes of a smooth exit led by Mrs May. It might be a hard Brexit but the market didn't seem to mind too much as long as domestically the government was secure. An early election and big majority for the pound was seen as smoothing the path for Britain’s exit from the EU. But the assumptions investors have been working to are no longer certain.

A hung parliament is the nightmare scenario for May. It would constitute a massive personal failure and undoubtedly a threat to her leadership.

As previously stated, if Mrs May fails to get the thumping majority she hopes for, her position will be a lot less secure than before she called the snap election.

A wobble in the polls began last week, when we discussed whether this was a mere blip or a sign of a much tighter race than markets had expected.

Mrs May has made this campaign particularly personal and a failure to secure a large swathe of new Tory MPs would be seen a failure of hers. This risks throwing open a Tory leadership contest and the prospect of a hard-line Brexiteer in charge. Boris Johnson is waiting in the wings.

If you were looking for the campaign to become energised, this will certainly do that. It may also get the Tory vote more enthusiastically on the day, while it seems a lot more younger people - more likely to vote Labour - are planning to vote in this election.

Of course it's just one poll and all the rest give the Tories a healthy lead. But this is arguably much more accurate for our first past the post system and therefore commands attention. It will certainly get it from Tory Central Office.

One thing is for sure - we now cannot say for sure what will happen on June 8th and this should make for a fascinating period in the markets as investors decide what it all means.thus is new territory - markets have been incredibly complacent until now and we might start to see investors price in a Labour win a lot more.

Corbyn, with his nationalisation plans and anti-business agenda, could send shivers down the spines of FTSE shareholders if he were to enter number 10. The blue chip index would take a beating if investors ditched shares in sectors that might be nationalised.

In fx markets, the pound is displaying nerves over the uncertainty but ultimately a Corbyn-led centre-left coalition could yield a softer Brexit (preserving single market access, free movement of labour) and this could be positive for sterling ultimately.

 

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