Fears for pound if May falls short

THE pound could nosedive if Theresa May fails to win a healthy victory today, voters were warned last night.

Sterling could slump around 7 per cent against the dollar to as low as $1.20 tomorrow in the event of a hung parliament, according to a poll of analysts by Bloomberg.

But a large majority for the Conservatives could push the pound up 3 per cent from its current level of $1.29 to $1.33, the survey found.

‘In the markets there is a very simple rule of thumb: the larger the Conservative majority becomes, the more positive it is for sterling,’ said Adam Cole, a currency expert at the investment bank RBC Capital Markets in London.

But whatever the outcome of the election, most hedge funds are still betting on a longerterm fall in the pound due to Brexit, according to figures released by the US Commodity Futures Trading Commis- sion. They show there were 29,700 more ‘short’ positions in the market than ‘long’ ones on Friday – up from 23,900 a week earlier. A ‘ short’ position involves betting on a fall in the pound while a ‘long’ one is an expectation that it will rise.

‘We think the pound will fall because we think investors have been taking the elections and the cost of Brexit too much under the radar – they are under- estimating the risks,’ said Alberto Gallo, a strategist at the London hedge fund Algebris Investments.

The Bloomberg survey found analysts believe sterling will rise to $1.31 if the Tories win a healthy majority, but some expect it to reach $1.33, its highest level since September last year.

A ‘small’ majority is expected to lift the pound above $1.30, leaving it not far from its current level. But a hung parliament is seen as a major risk to sterling as it throws the makeup of the future government into doubt and would complicate Brexit.

A Labour win is also expected to hurt the pound in the short term, sending it back below $1.25, although the prospect of a majority for Jeremy Corbyn is seen as better than a hung parliament and chaotic coalition.

Neil Wilson, senior market analyst at trading firm ETX Capital, said: ‘Sterling could go either way as the general election result remains too close to confidently predict. The pound faces a major test.’