Pound dives as UK enters new period of uncertainty
- Author: Zachary Reyes Jun 11, 2017,
Jun 11, 2017, 15:05
It would make British exports more price competitive around the world - something that was reflected in a rise in shares for major British companies on Friday, with the FTSE 100 index was up 0.6 percent.
Blue-chip stocks campaigned to a higher close on Friday after PM Theresa May's Tories ended up with a humiliating hung parliament in their snap general election, causing sterling to flop on the dollar and euro.
Just a few weeks ago, polls were predicting the Conservatives would secure a landslide victory, with even eve-of-election surveys claiming Theresa May was on course to win by the biggest margin since the days of Margaret Thatcher.
However, a hung parliament inevitably means a weaker party. 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.
In a research noted, Mr Mac Coille said this will add pressure to Irish exporters to the United Kingdom following just 2.4% export growth in 2016, the worst performance in four years.
"The possibility of a labour-led coalition that could trigger a much softer Brexit with access to the Single Market - or even another vote - isn't really being considered yet".
As far as investors are concerned, sentiment surrounding the pound will dictate the fortunes of the stock market, as it has done repeatedly over the past year.
"Following the Brexit vote, sterling's depreciation drove a c10% hit to TUI's underlying EBITA".
While Sterling is most likely to drive GBP AUD exchange rate movement in the near future, next week's Australian data could influence the "Aussie" slightly.
The Canadian dollar strengthened against its US counterpart, recovering from an earlier 1-week low as strong domestic jobs data supported the view that the Bank of Canada will raise interest rates earlier than previously thought. But yields have since bounced from the lows as risk aversion ebbed.
Brexit negotiations with the European Union are due to start on the 19th June, this outcome could not have come at a worse time.
"The uncertainty is bad news for sterling", said Bank of America, Merrill Lynch European equity and cross-asset strategist James Barty.
The BBC forecast the Conservatives would hold a reduced 318 seats in the 650-member parliament, following a big swing to the left-leaning opposition Labour Party. If hopes for a "soft Brexit" are in fact the main takeaway, the anti-risk Japanese Yen be pressured and the Euro might find a bit of support. However, Labour leader Jeremy Corbyn has since soared into contention, putting May's election gamble to gain a stronger majority and Brexit-negotiation mandate in doubt.
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.
'The implementation of the most radically socialist agenda since Michael Foot's 1983 "suicide note" would explicitly target corporate earnings and is likely to lead to a severe market correction, ' says Stevenson.
City Index market analyst Ken Odeluga said: "Some investors are seeking protection as a Conservative majority, while still likely, is looking less like a done deal".