Published On: Wed, May 31st, 2017

Theresa May loses her shine with the currency market

Story image for CURRENCY from Financial Times

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The pound has been affected by the tightening of polls since Theresa May called a snap election in April © FT montage; FT; Reuters Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 8 Save 3 HOURS AGO by: Kate Allen and Roger Blitz For a prime minister with little experience of the City or financial markets, Theresa May has been a boon for the pound in 2017. In January her first big speech on the government’s Brexit strategy sent the currency up 3 per cent against the dollar in a single day. Underlining how the market was warming to her premiership, sterling jumped 2 per cent on April 18 when she called the snap election. However, the confidence that Mrs May has inspired in currency traders and investors for much of this year has been hurt by a bruising election campaign, prompting foreign exchange currency strategists to speculate on what a coalition government or even one led by Labour leader Jeremy Corbyn might look like. Sterling’s political pause Play video While polls suggest that both prospects remain remote, the question now facing investors is whether their longstanding assumption that the election will strengthen Mrs May’s hand in the upcoming Brexit negotiations still stands. The Conservatives ended the last parliament with a majority of just 17 and some pollsters had estimated it could increase to as much as 100 in next week’s election. “Investors had assumed the election was a done deal and was going to deliver this stunning majority,” says Chris Turner at ING. “But the polls have pulled the carpet from under their preconceived notions.” A torrid couple of weeks of campaigning for Mrs May, including a damaging U-turn on a flagship social care policy, have seen the Conservatives’ lead in the polls whittled down — or even wiped out, if controversial modelling released on Wednesday by pollster YouGov turns out to be accurate. That helped drive the pound briefly below the $1.28 mark on Wednesday. The pound is the second-worst performing major currency against the dollar in May, and has fallen more than 3 per cent against a resurgent euro as the eurozone economy shows increasing vigour. It is a far cry from the April day on which the prime minister’s surprise decision to seek her own mandate from voters was quickly followed by polls putting Labour at least 20 points behind. Investors had reasoned that a thumping majority would allow Mrs May to silence hardline Brexiters on the Tory backbenchers and make retaining as much access to the EU market as possible her chief ambition in negotiations. With a week until the British electorate goes to the polls, the currency market is now having to rapidly recalculate how sterling might react to outcomes in which a much bigger majority fails to materialise. ING, for example, predicts that a majority of 50 is the minimum required to prevent a negative reaction in the pound. “Compared to where we were a few weeks ago, when we were looking at a majority of 100 to 150, if the Tories end up with an increase only in the tens, that will be a big disappointment for the market,” says Mr Turner

[Source”timesofindia”]