Biggest drop in sterling since February, will sterling recover this week

Last Thursday, sterling made its biggest one-day drop since February as election jitters returned to the market. In the first opinion poll taken since last week’s suicide bomb attack in Manchester, the Conservatives’ advantage over Labour has narrowed to just five points.

The YouGov survey put the Tories down a point on the previous week at 43%, while Labour gained three points to reach 38% of the vote. The narrowing is of concern to the market as fears of a hung parliament instead of a strong majority are now looking a real possibility. Theresa May has stated she wants a significant majority as this will give her the mandate for the best possible Brexit talks. It looks as if the market believes her.

With the start of a new month this week we start to get economic data for May being released. On Thursday and Friday we have the UK Purchasing Manager Indices (PMI) for Manufacturing and Construction released respectively. It is forecast that we will see a downturn in these figures albeit only slight.

Overall though, economic data is likely to take a back seat this week and next as the market will scrutinise the political landscape as we edge ever closer to the UK general election on June 8th. Last week’s poll shocked the markets which resulted in a risk off approach toward sterling. We would not be surprised if we saw the pound coming under further pressure throughout the week as the situation is far from clear.