Pound Dives on Fears UK Election May Produce No Clear Winner

Corybn exchange rates

A one pound coin lies on a UnionFlag in this picture illustration shot on May 3, 2017.

That still left sterling down 1.7 percent against the dollar on the day and on track for its biggest one-day fall since last June, though that move was dwarfed by an nearly 8 percent dive the day after last June's European Union referendum.

MSCI's broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS was barely changed.The exit poll predicted the ruling Conservatives would win 314 seats in the 650-member parliament and the opposition Labour Party 266, leaving no clear victor when markets had assumed May would easily increase her majority.Betting agencies were already taking wagers on whether May would lose her job."It's clear that the election is a humiliation for the Tories, who blew a massive poll lead in just a few weeks", said Sean Callow, senior currency analyst at Westpac.

Against the euro the pound was down by one per cent at 1.142 euros.

Sterling dropped sharply on the exit poll, losing close to 2%, before recovering a little after early results from the North East of England showed a smaller swing from the Conservatives to Labour than had been forecast by the exit poll.

It was said that if Theresa May failed to secure the enlarged majority she was looking for then the pound would fall back markedly today.

Any delay in starting the talks would increase fears that it will be even more hard to secure a deal within the 2-year time-frame. Standard & Poor's, which a year ago stripped Britain of its prized triple-A rating, after the Brexit vote, said: "a further downgrade or downgrades could be in the wings".

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Bourses in Frankfurt, Paris and Milan had also slipped back to leave MSCI's closely-followed 46-country "All World" index down 0.1 percent and set for its first weekly fall since mid-April.

British gilt yields were broadly flat, having earlier fallen as investors sought the security of government bonds in the face of the uncertainty.

The FTSE 250 index which includes smaller companies, many of whom have more of a United Kingdom focus, was down 0.35 per cent. As far as levels go, the 1.30 region would be crucial as so far, over the last few weeks, repeated attempts at that level have ended in failures for the bulls and so they would need a break through this region for them to progress further to 1.34.

Investors' traditional views of whether the Conservatives or the opposition Labour party would be good or bad for the pound have been muddied in this election, not least by the prospect of Brexit talks due to start on June 19.

The currency market's reaction signalled the extent of worries about political uncertainty ahead, with the potential to hit Brexit talks and damage Theresa May's negotiating hand. "Heightened political uncertainty is a threat to the pound, but in the longer term, sterling could benefit if this leads to expectations of a softer Brexit, although the negotiations themselves remain a downside risk".

"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".

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