Pound Touches Six-Week Low Amid Tight UK Election Risk

The British pound has come under pressure after the release of a poll which suggested that Theresa May’s Conservative Party may fall short of majority in next week’s election.

The U.K. pound declined 0.5 percent to $1.28, after earlier touching $1.2788. This is still above Friday’s low of $1.2776.

Hung parliament

YouGov, the polling group which unveiled the forecast, said that Prime Minister Theresa May’s Conservative party could close as many as 20 seats at the June 8 vote. This implies falling 16 seats short of an overall majority in the 650-seat chamber, leading to a hung parliament.

“A hung parliament is the nightmare scenario for May. It would constitute a massive personal failure and undoubtedly make for great domestic political uncertainty at the worst possible moment for Britain,” said Neil Wilson, Senior Market analyst at ETX Capital.

Elsewhere, the dollar rose against the yen to ¥110.88, from ¥110.84 late Tuesday.

“The currency’s drop is another example of markets not being prepared for a close election, let alone a hung parliament. Speculative short positions have been unwound, leaving sterling looking for fresh direction. So speculators may reload short-pound positions if the election is indeed a lot closer than was implied by the sharp rally when the election was announced,” said Sean Callow, a senior currency strategist at Westpac Banking Corp.

Swiss franc rises against most majors

The Swiss franc strengthened against its major peers in the European session on Wednesday. The Swiss franc rose to a nearly 2-month high of 1.2446 against the pound. Against the US dollar and the euro, the Swiss franc surged to 2-day highs of 0.9735 and 1.0879 from early lows of 0.9761 and 1.0911, respectively.

According to Thomas Flury, who is a senior currency strategist at UBS, after two years of high overvaluation, the Swiss franc should ease. He expects the euro to be worth 1.14 francs in 6 months and 1.16 within a year. If this prediction comes true, it will be a goods news for exporters, and bad news for Swiss importers, travellers, and cross-borders workers.

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