LONDON — The pound has dropped below 1.30 against the dollar once again on Monday morning, losing ground as the greenback strengthens and a little uncertainty about the outcome of the UK’s upcoming general election slips into the minds of market participants.
Sterling passed above the psychologically significant $US1.30 level last week, but struggled to push above $US1.31, and on Monday has taken another leg lower, largely thanks to dollar strength.
The world’s most important currency fell sharply against most others on Friday after US Federal Reserve FOMC member James Bullard suggested that the Fed’s current expectations for interest rate may be too aggressive. However, as currency markets reopened on Sunday night, the dollar started to strengthen once again, pushing sterling, as well as the yen and the euro, lower.
By 9.45 a.m. BST (4.45 a.m. ET) sterling is 0.4% lower at $US1.2972, as the chart below shows.
While the dollar’s gains are the main reason for sterling’s dip, there is also a political driver, after several polls over the weekend showed the Conservative Party’s lead in election voting intentions slipping significantly. A YouGov poll for the Sunday Times, for example, found that the Conservative lead has halved in the past week, with Labour rising to 35% and the Conservatives dropping to 44%.
Given that a strongly increased Conservative majority is largely seen as the most market-friendly outcome, any sign of a Labour resurgence is likely to give some in the market jitters.
“With UK politics and Theresa May back in focus this week, the upside is likely to remain limited with Sterling in store for some fresh punishment,” FXTM Research Analyst Lukman Otunuga said in an email on Monday morning.
“With the pending second estimate GDP for the first quarter of 2017 likely to be unrevised, the main event risk for Sterling this week should be the inflation report hearings on Tuesday where BoE Mark Carney testifies on inflation and the economic outlook before the Parliamentary Committee.”
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