Pound will plummet if UK election ends in hung parliament
The pound could fall to 1.20 against the US dollar should next week's general election result in a hung parliament, predicts a leading financial expert.
The likelihood of a Conservative majority is falling amid growing support for Labour, which is closing the gap according to several political polls.
Kantar and BMG recently showed Labour up 5%, Survation 3%, while YouGov's latest poll had Jeremy Corbyn's party up 2%.
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As the Conservative Party's grip on an absolute majority loosens, the pound has fallen with foreign exchange markets selling off the currency.
GBP/EUR was quoted as high as 1.1765 when the odds of a Conservative majority leaned towards 70 percent, but the exchange rate has now fallen below 1.17 as the odds of Boris Johnson's majority stand at 64 percent, according to the Betfair Exchange.
Nigel Green, CEO of independent financial advisory organisation deVere Group, is predicting another drop should we end up with a hung parliament in which no party has an absolute majority.
"The overwhelming majority of polls tracking the UK election clearly suggest growing support for Labour," he said.
"The surge for Labour in the recent polls, which raises the spectre of another hung parliament, has been reflected by the dip in the pound against the dollar, the euro and other major currencies.
"I think we can expect the pound to fall to $1.20 in the event of another hung parliament."
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Mr Green says a hung parliament will likely lead to another EU referendum and another Scottish independence referendum, causing uncertainty about the UK's future.
"Uncertainty is something financial markets loathe and this is why the pound has dipped on the news of Labour closing in on the Conservatives ahead of this crucial Brexit election," he added,
"The uncertainty would also serve to continue to dampen business investment which, of course, will drag on economic growth."
He predicts the pound to reach $1.35 if the Conservatives do manage a majority, with UK financial assets standing to "gain with immediate effect".
"Should a Conservative majority be delivered, I believe the pound will reach $1.35."
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However financial risk management firm JCRA has forecast a less severe drop in the event of a hung parliament, with GBP/USD expected to fall a few percent to 1.2500 and GBP/EUR towards 1.13-1.14.
Director Chris Towner says a hung parliament "would certainly result in further frustration at the continued stalemate in passing a Withdrawal Agreement".
- Boris Johnson
- Jeremy Corbyn
- Conservative Party
- Exchange Rate
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