When UK PM Theresa May first called for a snap election a few weeks ago, sterling's value surged due to the consensus that the Tories would win with a very comfortable majority in the House of Commons. At this point, the GBP/EUR forecast was that the rate would continue to go up, and would go up even more once and if Theresa May won the election. Since then, it seems that the Labour Party and others are starting to eat away at the huge gap the Conservatives had. Various opinion polls are now showing that Jeremy Corbyn has closed the gap to just 4% for the Tories, which now means this election is about to be a very close call.
It is because of the results of the above opinion polls, that uncertainty has set in the market, and the pound has weakened against most major currencies. Even though we saw that the GBP/USD exchange hit 1.30 due to political uncertainty in the U.S, after recent polls in the UK, this exchange rate has fallen back to 1.28.
So why does the market not like Labour? Simple... it's uncertainty. A Conservative win would mean a continuation of policy both domestically and for Brexit negotiations. A Labour win would throw the markets off a little as they are unsure as to how he would manoeuvre in said negotiations. After watching Jeremy Paxman's interrogations of both Theresa May and Jeremy Corbyn, and then analysing the responses on TV and on the internet, I feel it is safe to say that Corbyn will jump ahead in the polls again, which will put pressure on sterling exchange rates.
This election will be close call, I will be very surprised if either party is able to deliver a convincing win- and that is why the Pound is weakening. Investors are not currently comfortable with holding funds in Pounds, many have learned their lesson from Brexit, and would prefer to see the outcome of the elections first before they move their money.
Theresa May also made a comment on Monday night saying "We are prepared to leave the European Union without a deal" - a strong negotiation tactic of course, but not something the market wants to hear. It is as a result of comments like this, I feel the market could start warming to Corbyn as his stance on Brexit is very different.
Now the political analysis is out of the way, how can we protect ourselves from this volatile market? As I look into my crystal ball I can see that the exchange rates will be extremely volatile over the next week leading up to the election, with opinion polls with conflicting results being released and political statements being made in the media. The pound will remain under pressure unless the Tories manage to get back a sizeable lead, but if they don't manage to do this, expect the pound to continue weakening.
In the short term, we could find opportunities where the pound does bounce back, I personally feel it is oversold, especially against the euro, but we will not see a convincing resurgence until the election is over, and in the long term until there has been a conclusion to Brexit.