The value of the pound dropped after a projection suggested the Conservatives could fail to win an outright majority in the election on 8 June.

Previous opinion polls suggested Prime Minister Theresa May’s party would increase its majority, which is currently 17 seats.

But the projection, published in the Times and based on YouGov research, suggests a possible hung parliament.

Sterling fell by more than 0.5% before recovering some losses.

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By Wednesday morning the currency was 0.36% lower against the dollar at $1.2813 and 0.35% lower against the euro at 1.1453 euros.

The pound has been volatile since the UK voted to leave the European Union in a referendum last year.

On the day of the referendum, 23 June 2016, the pound hit $1.4883. The day after, it fell below the $1.35 mark.

Sterling fell further in October and hit a low of $1.2047 in January this year. It has struggled to reach the $1.30 level ever since.

The Times said the YouGov data suggested that the Tories could lose up to 20 of the 330 seats they held in the last parliament, with Labour gaining nearly 30 seats.

The Conservatives would still be the biggest party, but would not have an overall majority.

Kathleen Brooks at City Index questioned the accuracy of the research.

“This was not a poll, rather it is the outcome of a model that has used untested methodology to come up with this hung parliament conclusion,” she said. “Other polls are predicting a completely different outcome, so we would use this information with a pinch of salt.”

However, Neil Wilson at ETX Capital commented: “This is new territory – markets have been incredibly complacent until now and we might start to see investors price in a Labour win a lot more.”

The model is based on 50,000 interviews over a week, with voters from a panel brought together by YouGov.

It uses a new “constituency-by-constituency” model for polling, which the paper says allows for big variations.

According to the Times, “the estimates were met with scepticism by Tory and Labour figures”.

YouGov’s chief executive, Stephan Shakespeare said the model had been tested during the EU referendum campaign, when it consistently put the winning Leave side ahead.

But he added: “It would take only a slight fall in Labour’s share and a slight increase in the Conservatives’ to result in Mrs May returning to No 10 with a healthy majority.”

Source: bbc