Britain's pound slipped broadly on Monday after polls showed a narrowing lead for Prime Minister Theresa May over her opposition ahead of elections next month. A Survation telephone poll published on Monday showed May's lead halving to 9 percentage points, with the opposition Labour Party up 5 points and May's Conservatives down 5. That pushed sterling nearly half a percent below highs hit above $1.30 last week in early morning trade in London.
"Given that we've seen some pretty decent gains in the pound in the past week or so, it [the polls] prompted a little bit of profit taking," said Michael Hewson, chief markets analyst at CMC Markets. Sterling has risen nearly 4 percent in the past month, in part on the assumption that a landslide election win for May would strengthen her hand over hard-line Brexiteers in her ruling party and allow her to negotiate a smoother departure from the European Union.
But her perceived weakness on the campaign trail, and a mixed reception for last week's election manifesto, has underwritten a recovery for the opposition Labour Party. May was forced to make a public retreat from proposals to reduce state support offered to elderly voters, after the poll confirmed concerns the plans could undermine support from ageing, wealthy homeowners - a core source of Conservative votes.
By afternoon trade in London, the pound had recovered a touch but was still down 0.3 percent on the day, at $1.3005. It was half a percent down at 86.35 pence per euro. With the centrist Liberal Democrats struggling to challenge May in her party's southern English heartlands, a 9-point lead should still see the prime minister win handsomely. But investors are mindful that if she loses, it would again throw the Brexit process into turmoil.
"While a 9-point lead could still give Theresa May a comfortable victory on 8th June, the fact her lead has been slashed in half in just a few days may reinforce to financial markets that her victory is not a certainty," said Kathleen Brooks, a market analyst with City Index in London. Data late on Friday showed that speculators further slashed their short positions against the pound to 32,995 contracts in the week to Tuesday. That effectively means bets on sterling falling are the smallest since March last year.
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