Pound dives as UK plunges into new period of uncertainty

Sterling shaken by UK election shock, damage limited elsewhere

Sterling shaken by UK election shock, damage limited elsewhere

A shock British election result that left no single party with a clear claim to power hit sterling on Friday and left the dollar on course for its best day in over a month, while world shares headed towards their first weekly fall since April.

The FTSE 100 opened nearly 0.8% higher - largely as a effect of weaker sterling boosting demand for shares in firms which earn the bulk of their revenues in dollars and euros.

"We went through a period a week ago when the polls were showing a marked narrowing or a hung parliament but the market has clearly taken heart from the latest polls". Against the euro the pound was down by one per cent at 1.142 euros. Things are in flux in the United Kingdom too: after the recent terrorist attacks, Labour got stronger according to YouGov's poll, and Conservatives only had a lead of five points (43% to 38%). Construction groups such as Balfour Beatty dropped sharply on worries that a hung parliament could slow down the award of government contracts. "We noted that maximum chaos would be if the Conservatives are only able to get somewhere between 290 to 325 seats; it's the grey area where it's not enough for a Conservative majority, but also potentially not enough to see a stable Labour-led coalition being formed quickly".

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" markets have anxious May would deliver. The S&P 500 lost 2.02 points, or 0.08 percent, to 2,431.77 and the Nasdaq Composite fell 113.85 points, or 1.8 percent, to 6,207.92.

The analyst believes potential pressure for the Prime Minister to resign would only add to political uncertainty and further add to the Pound's woes.

Sterling fell as much as 2.4 percent before recovering some of its losses.

'This is very different to the Brexit vote of previous year, ' he said.

At the time of writing this article, the Pound to Australian Dollar exchange rate traded at around 1.69. But yields have since bounced from the lows as risk aversion ebbed.

'The result is likely to call the position of the Prime Minister into question, the government is likely to be relatively weak, and the result further complicates the upcoming Brexit negotiations, due to start on June 19'.

Bank of America-Merrill Lynch was partially on-board with Macquarie's view.

It remained unclear whether the two parties would form a coalition or operate a "confidence and supply" arrangement that would see Unionists support a minority government on vital matters in return for some of their policies being enacted.

The BBC projects that the Conservatives would be the largest party with 318 seats, they require 326 for a majority.

As exit polls start to be released from around 10pm tonight, all eyes will start turning to the reaction from global investors, and how that impacts the pound, gilts and the FTSE 100.

However, the leftist Jeremy Corbyn's Labour Party slashed the ruling Conservatives' lead, leaving the country with a hung parliament and political instability for the second time in seven years.

What do retail traders' buy/sell decisions say about market trends?

Investors have relied on nearly $2 trillion that central banks, including the Federal Reserve, have pumped into capital markets over the past 12 months, which has driven up asset prices, said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

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