The pound is falling after a new poll predicted a hung parliament

Britain’s Prime Minister Theresa May attends an election campaign event in Wolverhampton, May 30, 2017.
REUTERS/Darren Staples

LONDON – The pound is falling against the euro and dollar on Wednesday after a new poll suggested that next week’s election could return a hung parliament.

The Times reports that a constituency-by-constituency poll by YouGov suggests that the Conservatives could lose 20 seats in the general election, while Labour could gain 30.

The Tory party would fall 16 seats short of the 326 needed to control the House of Commons, leaving no one party with overall control of parliament.

The Times admits in its report that the YouGov poll “allows for a wide margin of error” and “suggests that the Tories could get as many as 345 seats on a good night, 15 more than at present.” YouGov is also quoted in the piece saying that the forecast is “controversial.”

Despite the caveats on the poll, the pound fell immediately against the dollar and euro when the Times’ report was released late on Tuesday evening. Sterling has since recovered slightly but is still below where it was before the poll was released.

Here’s how the pound looks against the dollar at 7.17 a.m. BST (2.17 a.m. ET):


And here’s how sterling looks against the euro:


Michael Hewson, chief market analyst at CMC Markets, says in an email early Wednesday morning: “While the pound has recovered some ground after its wobble at the end of last week, there is a slightly more cautious attitude as a result of those narrowing polls, with another survey showing that the prospect of a hung parliament has also increased, which has also acted as a bit of a weight around sterling’s recent progress.”

Nomura’s Jordan Rochester says in an email on Wednesday that a better-than-expected result for Labour could actually be good for the pound in the long-term.

“Once the dust has settled austerity would be removed and “softer Brexit” hopes would return after the dust has settled higher real yields may offset this and GBP eventually would be higher,” Rochester writes.

But he adds: “It is important to note that this is the ‘end-game’ of a Labour win we are talking about. To get there, we would have to travel through territory that included hung parliament and coalition risks and expectations.”