Pound plunges as election uncertainty rattles financial markets

The pound has plunged in value as financial markets digest the implications of a General Election result that has left the UK in political limbo.

Earlier on election day, sterling had hit a two-week high of $1.2978 after polls predicted a comfortable victory for the Prime Minister’s party.

But in the moments after an exit poll predicted the Conservatives would be the largest party, but with fewer MPs, the currency dived to around $1.2730 in Asian trading- its lowest point since the election was called in April.

It later hovered 2% lower as trading got into gear in London, at $1.2692, after a hung parliament became clear – plunging domestic politics into turmoil with the potential to delay Brexit talks.

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Financial spreadbetters expected the FTSE 100 to open 0.2% higher – largely as a consequence of weaker sterling boosting demand for shares in firms which earn the bulk of their revenues in dollars.

Sky News Economics Editor Ed Conway said: "Yet again there’s been another shock to the system.

"Traders out there who were nervous about that exit poll but thought there was going to be an overall majority – you can see what they’re doing, they’re selling the pound."

The exit poll predicted the Tories would fall short of the 326 seats needed to take office alone, meaning Mrs May would have to form a coalition or attempt to govern with the backing of other smaller parties.

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The election result did not spark the sell-off some market commentators expected.

Kathleen Brooks, research director at City Index, said: "Perhaps the market is looking at this result as a vote for a softer Brexit, which could boost the pound in the long run."

Political deadlock in London could derail Brexit negotiations with the other 27 EU countries before they even get started in earnest as a delay in forming a government could push back the planned 19 June start date for the talks and squeeze the time available.

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Mrs May called the election asking the public to back her plan for a so-called hard Brexit that prioritised control over immigration, with Britain leaving the single market and customs union.

Her failure to win a majority leaves her position as Conservative leader in question – raising the prospect of another election later in the year.

A Jeremy Corbyn-led government would be likely to rattle financial markets further after the veteran socialist’s manifesto pledged a corporation tax hike and income tax rises for the UK’s richest 5%.

Labour promised to push ahead with Brexit but said it would scrap the PM’s plan and prioritise keeping the benefits of the EU single market and customs union.

(c) Sky News 2017: Pound plunges as election uncertainty rattles financial markets