United Kingdom election shock stuns sterling

Pauline Gross
June 9, 2017

LONDON, June 9 (Reuters) - Sterling tumbled as much as 2.5 percent on Friday, while the FTSE share index opened higher, after British voters denied any party a majority of seats in parliament, plunging the country into political chaos days before the start of Brexit talks.

Sterling sank in Asia on Friday after British elections seemed to have left no single party with a clear claim to power, sideswiping investors who had already weathered major risk events in the United States and Europe.The pound dived over two USA cents in a matter of seconds, though most stocks and bond markets were relatively unscathed awaiting further results.An exit poll showed Prime Minister Theresa May's Conservative Party could fail to win a parliamentary majority, a shock result that would plunge domestic politics into turmoil and could delay Brexit talks.But early results were mixed and left the outcome very much in doubt, with the BBC reporting that 76 seats appeared too close to call. But it fell sharply again as London traders arrived at their desks, as it became clear that no party had won a majority.

ETX's Wilson continued: "A technically hung parliament does mean uncertainty but for sterling there is the compelling trade-off with a softer version of Brexit more likely now as Mrs May's mandate to push through her clean, hard Brexit has evaporated". "Hopes that political uncertainty would decrease substantially under a more stable Conservative government.(have) been all but dashed".

By 0530 GMT, sterling was 1.5 percent lower on the day at $1.2753 - having fallen as low as $1.2693 - and 87.78 pence per euro.

An exit poll showed Prime Minister Theresa May's Conservative Party could fail to win a parliamentary majority, a shock result that would plunge domestic politics into turmoil and could delay Brexit talks.

On currency markets, the pound also steadied somewhat after its initial drop versus both the dollar and the euro, down around 1.5% against both at US$1.2752 and €1.1380.

The opinion polls continue to suggest a Conservative lead, although the scale of the advantage in recent studies has ranged from a single point to a double-digit lead for Theresa May.

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In fact this is only the seventh biggest one-day fall for the pound over the past year.

Will there need to be a new election soon?

Above all, investors are anxious about the general uncertainty surrounding the country - whether a bruised May will resign in due course, whether the Conservatives will be able to form a new government or whether it will be an alliance of opposition parties, led by the Labour Party.

Some also argue that any Labour-led coalition might aim for a softer deal on Britain's planned departure from the European Union than the "hard Brexit" that markets have anxious May would deliver.

"This is messy for the United Kingdom economy and its Brexit negotiations and hence is a negative for the pound and share market", said Shane Oliver, chief economist at AMP.

"This could well see the pound come under further pressure".

Other reports by GizPress

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