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Pound Stumbles With Johnson’s Election Quest Up in the Air

Pound Stumbles With Johnson’s Election Quest Up in the Air

(Bloomberg) -- The pound fell as U.K. Prime Minister Boris Johnson’s call for a December election was up in the air, with Labour leader Jeremy Corbyn rejecting the plan.

Sterling initially dropped to a one-week low as Johnson announced Thursday that a motion to trigger the poll would be put to a vote in the House of Commons on Monday. He’ll require some support from members the opposition for the election to occur, which looks less likely after Corbyn said he wouldn’t support the vote without a guarantee of a no-deal Brexit.

The uncertainty sent sterling down by as much 1% on the day to $1.2789, the lowest since Oct. 17, before it trimmed the loss to $1.2847.

The prime minister leads in the polls and may be able to win with a larger majority to push his Brexit deal through -- although that’s by no means a certainty. Analysts are split as to whether a general election would boost or diminish the pound’s prospects, after sterling rallied 2.5% last week as the prospect of a no-deal Brexit faded.

A government led by left-wing Labour leader Corbyn, who has said he’d nationalize parts of the economy, boost borrowing and redistribute income, has long been a risk on the market’s radar. As a result the pound’s performance into an election may depend on how real that threat seems.

Should Parliament approve the election, the pound’s downside is “substantially smaller” than in the case of a no-deal Brexit situation, according to Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce. Still, Stretch expects that an election before year-end could send the currency toward $1.24, a 4% drop from current levels.

To contact the reporters on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net;Charlotte Ryan in London at cryan147@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum

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