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Pound plunges amid fears over Brexit delays Pound plunges amid fears over Brexit delays
(about 1 hour later)
Fears that a hung parliament could delay Brexit negotiations sent the pound plunging in late trading on Thursday.Fears that a hung parliament could delay Brexit negotiations sent the pound plunging in late trading on Thursday.
The immediate reaction to the shock 10pm exit poll saw the pound fall as much as 2% to $1.27 in the currency markets, hitting its lowest level in six weeks. The pound immediately dropped in reaction to the shock 10pm exit poll, falling as much as 2% to $1.27 in the currency markets, its lowest level in six weeks.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, described the exit poll as a “thunderbolt”, reflecting shock across the City, where dealers had begun the evening expecting a clear majority for the Conservatives.Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, described the exit poll as a “thunderbolt”, reflecting shock across the City, where dealers had begun the evening expecting a clear majority for the Conservatives.
There were predictions of a sharp drop in the pound and the FTSE 100 if the poll’s projection were to be confirmed by Friday morning. There were predictions of a sharp plunge in the pound and the FTSE 100 if the poll’s projection were to be confirmed by Friday morning.
The currency regained some of the lost ground as the first results came in and traders stationed at their desks across the City calculated that the exit poll was overstating the Conservatives’ losses. The currency had regained some of the lost ground as the first results came in and traders stationed at their desks across the City calculated that the exit poll was overstating the Conservatives’ losses.
Jeremy Cook, the chief economist at World First, said if the exit poll proved to be correct, it could drive sterling down to $1.24. This figure would, however, not be as low as the levels it plunged to following the Brexit vote almost a year ago. Jeremy Cook, the chief economist at World First, said sterling was moving as each seat was called and at 1.30am, it slipped to a new low for the session of $1.2696, as sentiment shifted back towards the exit poll being correct. If it were, Cook said, it could drive sterling down to $1.24. This figure would, however, not be as low as the levels it plunged to after the Brexit vote almost a year ago.
“We’re in for a long night. Currencies like governments with mandates – and don’t like delays to Brexit,” Cook said.“We’re in for a long night. Currencies like governments with mandates – and don’t like delays to Brexit,” Cook said.
The exit poll was published hours after the stock market closed, by which time the FTSE 100 had fallen 0.38% to 7449.98 and sterling had lost 0.1% to $1.2945, after earlier climbing to a two-week high of $1.2977.The exit poll was published hours after the stock market closed, by which time the FTSE 100 had fallen 0.38% to 7449.98 and sterling had lost 0.1% to $1.2945, after earlier climbing to a two-week high of $1.2977.
Investors were surprised when May called the election on 18 April, with the FTSE 100 suffering its biggest fall since the vote for Brexit, but commentators were expecting that the Tories would win convincingly, with some predicting a landslide.Investors were surprised when May called the election on 18 April, with the FTSE 100 suffering its biggest fall since the vote for Brexit, but commentators were expecting that the Tories would win convincingly, with some predicting a landslide.
Lee Hardman, a currency analyst at MUFG, also warned the pound could plunge if the poll proved to be correct. “The market will be praying that this exit poll has got it wrong. Currency volatility is the best proxy for market fears; if the Conservative ship is sinking, then the market will be looking for a lifeboat,” he said.Lee Hardman, a currency analyst at MUFG, also warned the pound could plunge if the poll proved to be correct. “The market will be praying that this exit poll has got it wrong. Currency volatility is the best proxy for market fears; if the Conservative ship is sinking, then the market will be looking for a lifeboat,” he said.
Kallum Pickering, an economist at Berenberg, agreed: “If the exit polls are right, tomorrow will be interesting, to put it mildly.”Kallum Pickering, an economist at Berenberg, agreed: “If the exit polls are right, tomorrow will be interesting, to put it mildly.”
The first constituency results before midnight showed the swing to Labour was not as large as the exit poll predicted, and helped sterling recover slightly from the night’s initial lows.The first constituency results before midnight showed the swing to Labour was not as large as the exit poll predicted, and helped sterling recover slightly from the night’s initial lows.
Even so, the City was focused on the fear that fresh political uncertainty could delay Brexit negotiations. Kit Juckes, an economist at Société Générale, said: “There will be other polls, and results will come out through the night, but this is going to leave Theresa May struggling to keep control of the Brexit process.”Even so, the City was focused on the fear that fresh political uncertainty could delay Brexit negotiations. Kit Juckes, an economist at Société Générale, said: “There will be other polls, and results will come out through the night, but this is going to leave Theresa May struggling to keep control of the Brexit process.”
Dean Turner, an economist at UBS Wealth Management, said: “It is early days, and the result can change, but it looks as though Theresa May’s grip over the Conservative party has weakened, which does not bode well for the forthcoming Brexit negotiations.”Dean Turner, an economist at UBS Wealth Management, said: “It is early days, and the result can change, but it looks as though Theresa May’s grip over the Conservative party has weakened, which does not bode well for the forthcoming Brexit negotiations.”
There was uncertainty about whether the election result could lead to a softer Brexit. Pickering said: “Markets might perceive the near-term uncertainty to be worse than it was after the Brexit vote. However, if a hung parliament forces a cross-party compromise, it could lead to a softer Brexit strategy, and may turn out to be positive in the long run after some serious initial confusion.”There was uncertainty about whether the election result could lead to a softer Brexit. Pickering said: “Markets might perceive the near-term uncertainty to be worse than it was after the Brexit vote. However, if a hung parliament forces a cross-party compromise, it could lead to a softer Brexit strategy, and may turn out to be positive in the long run after some serious initial confusion.”
The Confederation of British Industry was quick to say any new government should start to refocus on the economy, which, according to official statistics, was the worst performer in the EU in the opening months of 2017 as the Brexit vote started to take its toll.The Confederation of British Industry was quick to say any new government should start to refocus on the economy, which, according to official statistics, was the worst performer in the EU in the opening months of 2017 as the Brexit vote started to take its toll.
“As a nation, we have the creativity, skills and global outlook to make the UK a true world leader in the industries of the future, bringing jobs and growth to all parts of the UK,” said Carolyn Fairbairn, the director general of the employers’ body.“As a nation, we have the creativity, skills and global outlook to make the UK a true world leader in the industries of the future, bringing jobs and growth to all parts of the UK,” said Carolyn Fairbairn, the director general of the employers’ body.
“As early priorities, business will want to see a commitment to tax and regulatory stability, fast progress on a modern industrial strategy to support skills, infrastructure and innovation, and a Brexit approach that puts people and trade ahead of politics.”“As early priorities, business will want to see a commitment to tax and regulatory stability, fast progress on a modern industrial strategy to support skills, infrastructure and innovation, and a Brexit approach that puts people and trade ahead of politics.”