Sterling fell for the second straight day on Wednesday, dented by Labour leader Jeremy Corbyn’s better-than-expected showing in a pre-election TV debate versus Prime Minister Boris Johnson who is perceived by markets as more business-friendly.
The currency also inched to a one-week low against the euro, though it remains not far from six-month highs given opinion polls show Johnson’s Conservative Party still in with a hefty lead of as much as 18 percentage points before the Dec. 12 election.
However, a snap poll released by YouGov immediately after the televised debate showed a “dead heat”, with 51% saying Johnson had emerged the victor while 49% backed Corbyn – a result that analysts said reflected better on the Labour leader.
“Given how far Corbyn’s personal ratings are below Johnson’s and how far Labour are behind in the polls, then such a split could be seen as a small victory for the opposition,” Deutsche Bank analysts said.
Tuesday’s testy leadership debate with Corbyn saw Johnson double down on his Brexit promises, saying only he could take Britain out of the European Union quickly. Corbyn said an election win for Johnson would put Britain’s public health service at risk.
With the prospect of widespread infrastructure nationalisation under Labour, and an abrupt Brexit possible under Johnson’s Conservatives, many business leaders say they face unprecedented levels of uncertainty.
The pound was last down 0.1% at $1.2913, having weakened to a five-day low of $1.2888 against a generally firmer U.S. currency, which was benefiting from renewed concerns over the direction of U.S.-China trade talks.
Against the euro, the pound traded down by a similar amount at 85.66 pence, off the six-month high of 85.22 pence it hit on Monday.
“Corbyn exceeds low expectations in TV debate,” MUFG wrote. “Opinion polls will now be watched closely to see if the TV debate has a material impact on public support. If evidence begins to emerge of Labour narrowing the Tories’ lead, the pound could come under further selling pressure.”
However, a significant shift in opinion polls might be needed to push the pound out of recent ranges. The currency, as well as UK domestic stocks, have rallied this month as betting markets have raised the chances of a parliamentary victory for the Conservatives.
On betting exchange Betfair, odds of a Conservative majority have tumbled to 4/9, roughly a 69% probability.
“The debate was not a game changer for sterling,” Rabobank currency strategist Piotr Matys, said.