The pound steadied against the US dollar and the euro on Monday as investors largely adopted a wait-and-see approach after last week’s general election resulted in a hung parliament, plunging the UK into deep uncertainty just days ahead of official Brexit negotiations kicking off.
In early trading, sterling was changing hands at around $1.2738 against the dollar. It fell around 2 per cent after exit polls showed the Conservative party had suffered a major blow in Thursday vote, and failed to recover when the final result confirmed that the Tory party had been unable to secure an outright majority.
The pound has lost around 12 per cent against the dollar since last June’s Brexit vote and even though some strategists indicated on Friday that a hung parliament could lead to a softer Brexit, which in turn might support the pound, many have remained sceptical.
“A ‘hard’ Brexit is almost a given,” Daniel Vernazza, UniCredit’s chief UK economist wrote in a note to clients. “With Theresa May weak, the hard-line Eurosceptics in the Conservative party, who are more organised than the Remainers, will be able to take the Prime Minister hostage in their pursuit of a hard Brexit,” he added.
“There isn’t any realistic prospect of this chaos leading to a rethink of the Brexit decision for the country.”
Stephen Martin, director general of the Institute of Directors, said that it’s “hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy”.
The FTSE 100 was trading around 0.2 per cent lower on Monday morning having jumped around 1 per cent on Friday. The index is largely made up of multinational corporations who generate much of their revenue outside of the UK, meaning that a fall in the pound tends to support those companies’ share prices.
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