LONDON: Option market bets on weakness in Britain's pound reached their highest in more than three months on Wednesday after a shock to the exchange rate from a poll showing the ruling Conservatives falling short of a majority in next week's election.
The 1-month sterling-dollar risk reversal - a measure of the balance of bets for more weakness of the currency in the next month over those for more gains - was quoted at around -0.9, its most negative since early February .
Offered rates for the contract were as low as -1.075, the lowest since Feb. 10.
Pollsters YouGov's first projection on the distribution of seats after the June 8 vote pointed to a loss of 20 seats for Prime Minister Theresa May's party that would leave her short of an overall majority in a parliament where she lacks potential coalition partners.
The calculations, based on 50,000 interviews, were criticised by some political analysts in the UK overnight and other projections show May would win soundly. YouGov's polling has also shown May's lead in the popular vote at just 5 points, compared to the double-digits suggested by other polls.
Yet the poll, the latest hit to markets who two weeks ago were pricing in a Conservative landslide, was enough to drive sterling to an almost six-week low in morning trade in London. By 0944 GMT, it traded down 0.7 percent at $1.2770 and half a percent lower at 87.29 pence per euro.
"A market-friendly UK election outcome already appears priced and the risks are now skewed to a disappointment," Deutsche Bank analysts wrote in a note to clients on Tuesday.
"We like selling the pound both against the euro and the franc."
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