Pound Touches 7-Week Low Amid UK Election Turmoil

The pound has fallen sharply after the general election result showed the ruling Conservative party has failed to reach a majority in the British Parliament.

The currency dropped as much as 2 percent against the US dollar to 1.26744 and a similar amount against the euro to 1.13.

Brexit talks

The election result left investors worried about the fact that a minority Conservative government would be weaker in Brexit negotiations, which start on June 19.

“With face-to-face talks with the EU due to start on the 19th of June, the timing could not be worse. The big picture is that political uncertainty could take weeks or months to be resolved and it is likely to weigh on both financial markets (in particularly the pound) and the economy,” said Paul Hollingsworth, economist at Capital Economics in London.

“The pound is paying the price of Theresa May’s failed gamble – and after a two percent fall overnight it remains deeply vulnerable,” said David Lamb, head of dealing at FEXCO Corporate Payments.

The Conservatives are the largest party with 318 seats, a loss of 12 seats and 8 short of the 326 required for a parliamentary majority. Labour gained 29 seats to 261 while the Scottish National Party finished on 35 seats, the Lib Dems 12, Plaid Cymru on four and the Greens one.

FTSE 100 receives boost

The weaker pound tends to boost the FTSE 100 as the majority of companies in the index have significant operations abroad. The FTSE 100 climbed 1.1 percent to 7,530.70. The FTSE 100’s surge came after the pound slid below $1.27.

On the other hand, the FTSE 250, which is more domestically focused index, fell 0.6 percent to 19,619.39.

Exporters like Burberry Group Plc and Diageo Plc were among the biggest winners, while more domestic-oriented companies such as home builders Taylor Wimpey PLC and Barratt Developments PLC lost 3.8 percent and 3.1 percent respectively.

The FTSE 100 has in recent months tended to trade higher when the pound falls, but analysts said that significant uncertainty now would likely lead to investors turning cautious on all UK assets.

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