November 21, 2019 / 10:06 AM / 20 days ago

Pound snaps 2-day losing streak as investors mull parties' election pledges

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Nov 21 (Reuters) - Sterling inched higher on Thursday after two days of losses as financial markets awaited an election manifesto from the opposition Labour Party, with the ruling Conservatives appearing to still hold a hefty lead in opinion polls.

With three weeks before Britain votes in its second election in just over two years, Labour leader Jeremy Corbyn will be hoping his manifesto will help his party narrow the gap with Prime Minister Boris Johnson’s Conservatives whose lead is currently estimated around 14 percentage points.

Both parties promise to end economic austerity and relax the purse strings for stretched public services before the Dec. 12 election, which will determine how, when and even whether Britain’s departure from the European Union happens.

Sterling has gained more than 8% from a Sept. 3 low as markets cut the risks of a no-deal Brexit. But gains have stalled in the past month as election uncertainty has risen, including the prospect of victory for the Labour Party which has pledged tax hikes for the wealthy and a swathe of nationalisations.

Jasper Lawler, head of research at London Capital Group, said sterling and shares in UK-focused companies were pricing risks attached to Brexit and a Labour government.

“British corporate executives will be sweating before the release (of Labour’s manifesto),” he said, though he did not expect an immediate reaction to the announcement.

“The more extreme the Labour manifesto, the more volatility we’d expect to see in the pound and UK shares when the polls tighten closer to election day. We still favour a break above 1.30 in sterling but stand ready to reverse that call if Labour’s manifesto can capture the public’s imagination.”

By 0930 GMT, the pound was 0.2% higher against a broadly weaker dollar and was very marginally weaker against the euro at 85.65 pence .

The currency had slipped to a five-day low of $1.2888 after Tuesday’s televised debate in which Corbyn was seen to have performed better than expected.

British shares were down 1%, with Royal Mail —- one of Corbyn’s nationalisation targets — down 12% after saying it was behind schedule on turnaround plans .

Johnson meanwhile outlined plans for a multi-billion-pound payroll tax cut but has not fully unveiled the Conservatives’ manifesto.

While bearish positions on sterling have been cut in recent weeks, they remain high and on derivatives markets too there are signs of nervousness. One-month implied volatility, a contract capturing the election date, has risen five percentage points in the past two weeks to 11.7% (Reporting by Sujata Rao, Editing by William Maclean)

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