(31 MAY 2017)DAILY MARKET BRIEF 2:UK: Political uncertainties are growing

The pound is now suffering a one-month low against the greenback after the pair hit $1.30 for the first time in nine months. Traders and investors are monitoring the UK election as it looks like that the Conservatives lead is getting smaller. A few weeks ago, Theresa May's party advantage was above 20 points but recent polls show the lead is now around 5 points. Some other polls are even showing, for the first time, the possibility of a loss for Theresa May’s Conservatives. The outcome has started to be uncertain and markets are pricing it.

Indeed a failure for Theresa May to win the election with a large majority would trigger more concerns about the Brexit negotiations that are coming up mid-June as the UK may not have the upper hand in those future negotiations. A win by a large majority is favoured by GBP bulls as it would certainly reduce the risk of a bad deal for UK. The influence from minorities such as hard Brexiteers or hard Remainers would be largely lower. May wants a “soft” Brexit but this result is now largely being challenged.

By Yann Quelenn