Yahoo Finance Sterling to fall to $1.20 if Corbyn wins
The pound is in for “a rough ride” if the Conservatives lose the general election, currency traders and analysts believe, after a number of strong polls for Labour sent the currency into a tumble late last week.
Sterling could fall by another 5pc on a Labour victory, forcing the currency down to $1.20 against the dollar, which would be the lowest level since the 1980s.
Against the euro the pound could fall to as low as €1.08 to $1.09, a level not seen since the depths of the financial crisis.
“Looking at how much we have moved since this election was called, it is pretty clear the response would be negative and if I had to put a figure on it, I would say a kneejerk sell-off of 5pc or a bit more,” said Adam Cole, head of FX strategy at RBC Capital Markets.
Analysts at Nomura anticipate a smaller move on the basis that a Labour victory would not be expected to lead to an overall majority for Jeremy Corbyn.
“Given where the polls stand if a surprise were to happen involving Labour, it would be a coalition involving Labour not a majority,” said Jordan Rochester.
“There will be a period where it is not clear who would form the coalition, so markets would not like that uncertainty and GBP in that scenario could head 3pc or more lower which would take us below $1.25 from current levels.”
The longer-term picture is less certain, however - given sterling fell sharply after the Brexit vote, a ‘softer’ Corbyn Brexit could lead the pound higher over time.
“At least for now, if the [poll] numbers keep closing then it suggests the pound is in for a rougher ride,” said Craig Erlam at Oanda.
“Corbyn is potentially seen as not as strong an opposition for the EU when it comes to Brexit negotiations, increasing the possibility of a raw deal, so it would suggest at least that the pound could weaken.”
But he did note that the predictions are still uncertain, adding that analysts expected a crash in markets when Donald Trump was elected - only for his victory speech to kick start a rally in stocks and the dollar, in defiance of forecasts.
