British Prime Minister Theresa May’s narrowing lead in opinion polls ahead of the June 8 election has weakened sterling and raised questions over whether she will win the landslide predicted just over a month ago.
The vote will decide whether May or her Labour Party rival Jeremy Corbyn takes control of Britain’s exit from the European Union – a two-year negotiation which will plot a new course for the $2.6 trillion economy.
The prime minister called the snap election in a bid to strengthen her hand in Brexit negotiations, to win more time to deal with the impact of the divorce and to strengthen her grip on the Conservative Party.
While she is still expected to win, with a lead of between one percentage point and 12 points in polls released over recent days, financial markets are now digesting a bigger range of outcomes than they previously had considered.
LANDSLIDE MAY VICTORY
Sterling rallied in April when May called the vote as investors bet her then-large poll lead would translate into a big majority, reducing uncertainty over whether she would have the mandate required to negotiate on Britain’s behalf and then drive the deal through parliament.
The snap election pushes back the date of the next planned national election from 2020 – just after Britain is due to have quit the EU – to 2022, giving May more time to put the exit deal in place and potentially reducing political risk over how the deal is implemented.
Some also take the view that a big majority would allow her to make compromises with Brussels, in contrast to a hardline approach to date that has prioritized issues like immigration and trade over access to Europe’s lucrative single market.
That all helped push sterling to an eight-month high of $1.3048 on May 18, since when it has weakened. Reuters