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Pound takes a dip after poll shows Tory lead at 5 points

Sterling is heading for a daily low after yet another poll showed the Conservatives’ lead over Labour shrinking, with six days to go before the election.

Ipsos Mori’s latest phone poll showed the Tories down by 10 points in the last week to 45 per cent compared to 40 per cent for Labour – giving them just a five-point lead. Labour were up six points in the poll.

Having traded flat for most of the morning, the pound is down 0.22 per cent against the dollar, approaching a daily low at $1.2850.

Today’s survey is the latest to show a hit to Theresa May in the week in which she ducked a televised leaders’ debate, after she was forced to renege on manifesto promises on social care spending last month.

Foreign exchange analysts see a five-point margin as the “key level of when Theresa May’s majority starts to be put into question”, according to Jordan Rochester at Nomura.

Ms May’s poll lead has tumbled since hitting a high of around 20 points after she called the snap vote in April. The FT’s “poll of polls” shows the Conservatives’ lead shrinking to 9 per cent (see above).

Still Mike Amey at Pimco notes that sterling, when measured on a trade-weighted basis, has not moved in the last month.

“There has been no discernible change in daily volatility, and sterling remains in the middle of this year’s trading range,” says Mr Amey, who thinks markets are still pricing in the chances of a Tory majority.

But should Ms May return to power with a weakened majority, expect sterling and gilt yields to lurch lower, he adds:

Many investors would immediately worry about a challenge to Theresa May’s leadership of the Conservative Party, and be concerned that a greater reliance on every Conservative member of Parliament risks a more confrontational approach to Brexit negotiations.

Given the electoral uncertainty and lack of market volatility, we do not believe investors are being adequately compensated to take risk associated with the outcome of the election.