Sterling reached six-month highs versus the euro and Canadian dollars early this week, although the pound has since weakened, while also losing value versus the US dollar.
In part, this is because markets are increasingly concerned that December 12th’s UK general election won’t deliver a decisive result. In this case, it’s possible that there might be another ‘hung’ Parliament, in which no single party wins, and the UK might run up against its extended Brexit deadline, of January 31st.
In particular, sterling has lost value this week, following an inconclusive ITV election debate, in which neither Prime Minister (PM) Boris Johnson nor Labour leader Jeremy Corbyn is thought to have won. In addition, trusted pollster YouGov’s latest survey shows that the Conservative Party’s lead has narrowed.
In addition, this morning we’ve learnt that the UK’s manufacturing and services sectors declined in November, according to economics watchdog IHS Markit’s monthly Purchasing Managers’ Indices (PMIs), weighing on sterling too.
The pound to euro and Canadian dollar interbank exchange rates reached six-month highs early this week, although sterling has since fallen back. In part, this is because, although the polls continue to suggest that the Conservatives will win a majority of MPs, this now looks less certain.
For example, YouGov’s newest poll suggests that the Tories’ lead has fallen by 5%, to 42%, versus Labour’s 30%. Traditionally, this would be still enough to grant the first-place political party a majority in the House of Commons, although the Tories’ decline has worried investors.
What’s more, although the polls still suggest a Conservative victory, this week’s ITV debate between Prime Minister Johnson and his opposition counterpart Mr. Corbyn was widely considered a draw.
According to a YouGov survey of 1,600 people following Tuesday night’s debate, 51% thought that Mr. Johnson had won, while 49% favoured Mr. Corbyn. This tells us that next month’s election result is far from guaranteed, which may affect sterling ahead of the December 12th vote.
Moreover, there’ll be further televised debates in the coming weeks, while the Conservatives are due to publish their campaign manifesto, following Labour’s yesterday. These too could shift the opinion polls, and influence sterling.
Turning to the economy, this morning we’ve learnt that the UK’s manufacturing and services PMIs for November fell to 48.3 and 48.6 respectively. Both these figures are below the 50.0 figure that signals economic growth, thus signalling declining economic output in the UK. This too has weighed on the pound.
Meanwhile, next week, the Bank of England’s Inflation Report Hearings are due, in which the central bank may discuss the outlook for the UK’s prices and interest rates. If this release surprises investors, it may influence the value of the pound.
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