The pound traded near a two-week high against the dollar on Thursday morning, as the first voters took to the polls in the UK’s general election.
Sterling was recently trading little changed against the dollar at around $1.2955, not far off its $1.2970 peak hit on Wednesday, which was the currency’s highest level since 25 May.
A final poll for The Independent showed on Wednesday night that Theresa May is on course for a definitive victory over Jeremy Corbyn. If those projections prove accurate, the Conservative party would secure a 74-seat majority – the largest the Conservatives have secured since the days of Margaret Thatcher.
Analysts in recent days have said that a victory for the Prime Minister’s Conservative Party would be supportive for the pound, but they’ve also commented that this outcome is largely priced in already, meaning that a significant rally if she does win is unlikely.
Strategists at Dutch bank ING wrote in a note this week that there are two scenarios under which the pound would likely see a big move. A sizable Conservative majority, they say, could lead to a big jump, while a hung parliament would lead to a major slump.
“Maximum chaos would be if the Conservatives were only able to get somewhere between 290 to 325 seats; it’s the grey area where it’s not enough for a Conservative majority, but also potentially not enough to see a stable Labour-led coalition being formed quickly,” they wrote.
Analysts polled this week by Bloomberg also agreed that of all the potential outcomes, including a win by Labour, a hung parliament would be the worst one for the pound.
Longer term, however, forecasters broadly agree that even a convincing Conservative win could keep a cap on the strength of the pound as it would increase the odds of a harder Brexit.
The pound remains around 13 per cent lower against the dollar since last June’s Brexit referendum but is up over 5 per cent so far in 2017.
