FX round-up: Sterling falls as investors head for safety ahead of UK election

Sterling had a tough time on most major crosses ahead of the UK general election on 'blockbuster' Thursday, with investors already heading for safe-haven assets, although it did gain markedly on South Africa's rand.

The South African economy has fallen into another recession --- its second in eight years -- as trade shrank and manufacturing contracted. The dollar also rose on the rand.

This was as investors ready themselves for 'blockbuster' Thursday, which marked a confluence of the UK election, ECB policy meeting and also the testimony of ex-FBI boss James Comey.

At 16:56 BST, sterling was down 0.02% to $1.2901, and was down 0.12% to €1.1452. It also fell on the aussie, loonie, kiwi and yen.

"Sterling was looking stronger a few weeks back when the polls were pointing to a Conservative majority," said David Madden, market analyst at CMC Markets UK.

"But now that Labour are closing in, we have seen some pressure on the pound," he added. The latest UK election polls revealed the Tory lead over Labour was narrowing.

A poll by Survation for ITV out overnight showed the Tories just one point ahead of Labour versus a six-point lead a week ago.

A YouGov constituency model published on Tuesday calculated the Tories would win a 42% share of the vote and 304 seats in the election, or 22 seats short of a majority.

Connor Campbell, financial analyst at Spreadex, said pre-election jitters had turned sterling from green on the charts to red.

FXTM research analyst Lukman Otunuga noted that with poll results varying from a narrowing lead for Conservatives over the Labour party to a nightmare 'hung parliament' scenario, Thursday’s election result remains unclear.

"This uncertainty ahead of the General Election on Thursday should expose Sterling to further downside pressures," said Otunuga. He expected a victory by PM Theresa May to be sterling supportive, although not without headwinds.

"It must be kept in mind that even after the elections are over, ongoing uncertainty revolving around Brexit and the exit negotiations may expose the pound to downside risks."

Turning to the US dollar, it, too, had a torrid time on most crosses, being lower on the euro, aussie, loonie, kiwi and yen. The dollar-spot index was 0.19% to $96.618.

"In a week where major events across the globe are likely to spark volatility, the main event risk for the dollar will be the testimony of former FBI Director James Comey before the Senate Intelligence Committee on Thursday," added Otunuga.

"Comey's testimony will come under heavy scrutiny with markets paying extra attention to see if anything new is brought to the table.

"Any new revelations or fresh information on whether President Trump wanted him to stop probing his connections to Russia could leave the Dollar vulnerable to heavy losses."