Election 2017: Investors unnerved by economic uncertainty
Election 2017: Minority government 'may support sterling'
(about 3 hours later)
The likelihood of a minority government has staved off a further drop in the value of sterling.
The likelihood of a minority Conservative government could stave off a further fall in sterling when trading begins on Monday, according to analysts.
Prime Minister Theresa May is in talks with the Democratic Unionist Party to run a minority government.
Prime Minister Theresa May is in talks with the Democratic Unionist Party to support her administration.
The prospect of a hung parliament saw the value of sterling sink initially, but it pared losses.
The Tories lost their Commons majority in Thursday's general election.
Sterling is down 1.6% against the dollar at $1.2743. And against the euro, is down 1.4% at 1.1382.
Sterling closed on Friday 1.6% lower against the dollar at $1.2743 and fell 1.4% against the euro to 1.1382 euros.
"Mrs May staying on as prime minister with help from the DUP has assisted sterling a little," said CMC Markets analyst David Madden.
Societe Generale strategist Kit Juckes said: "You may well see the pound bounce on the optimism ... but it will be short-lived."
Societe Generale strategist Kit Juckes said: "You may well see the pound bounce on the optimism... but it will be short-lived".
David Madden of CMC Markets said Mrs May staying on as prime minister with help from the DUP may assist sterling "a little".
The falls against either currency were less dramatic than those in the wake of the EU referendum in June last year.
The pound's fall against both the dollar and euro was less dramatic than the drop in the wake of the EU referendum in June last year.
A softening Brexit?
The chances of Mrs May securing a "hard" Brexit have diminished following the loss of the Conservatives' Commons majority, according to some commentators.
The former chancellor George Osborne has said he does not believe there is now a majority in the Commons for a "hard Brexit", after the loss of Tory seats in the general election.
George Osborne, the former chancellor, told the BBC he did not believe that most MPs now backed a "hard" Brexit" following the election result.
Mr Osborne, referring to the Scottish Conservatives leader, told Andrew Marr that "if the Ruth Davidsons of the world are starting to flex their muscles, then in my view that's a good thing".
Panmure Gordon market commentator David Buik said the hung parliament would "require an immediate response to settle for a much softer Brexit".
Ms Davidson said in the wake of the general election "we must seek to deliver an open Brexit, not a closed Brexit".
Former Business Secretary Sir Vince Cable, who is returning to the Commons after regaining Twickenham in southwest London for the Liberal Democrats, said "the whole Brexit approach will have to be rethought".
Panmure Gordon & Co. market commentator David Buik said the inconclusive result "will require an immediate response to settle for a much softer Brexit".
The DUP campaigned for Brexit, but wants a common travel area between the UK and Ireland and no hard border with the Republic - the UK's only land border with the EU.
The DUP is campaigned for Brexit, but wants a common travel area between the UK and Ireland and no hard border with the Republic, the UK's only land border with the EU.
FTSE rises
The FTSE 100 closed 1% up on Friday - boosted by companies that earn profits in dollars - domestic stocks like Next and Barratt Developments were hit hard.
"Disposable incomes will be stretched," said analyst Nicholas Hyett
The weakening pound makes imported goods' prices higher and squeezes consumers' ability to spend.
Mr Hyett, from Hargreaves Lansdown, ran through the affected sectors: "Housebuilders are down across the board, but they're joined by restaurants, high street banks, fashion retailers and media outlets.
"The implication is clear; consumer's disposable incomes are expected to be stretched, and big-ticket items, like property upgrades, as well as little luxuries."
Housebuilders, including Taylor Wimpey and Persimmon, saw falls of up to 5%, but recovered slightly to finish between 2%-3% down.
Retailers were also big fallers, but pared losses in late trading. Next closed 1.75% down, and Marks and Spencer closed 1.8% lower.
Banks most dependent on the UK were also hit. Royal Bank of Scotland closed down 2.4%.
However, shares overall were higher with the benchmark FTSE 100 index up 1% at 7,527 points. Miners and commodity stocks were among the main gainers.
A fall in the value of the pound tends to boost the FTSE 100 as the majority of companies in the index have significant operations overseas. A weaker pound means profits earned abroad are worth more when converted back into sterling.
Traders had been expecting a clear victory for Theresa May's Conservative Party. It is still the largest party but will be short of the numbers needed to be fully in charge.
Investor sentiment was not helped by the latest UK industrial production figures, which showed output rose by less than had been expected.
While the pound's move is significant, it is far less striking than that seen in the aftermath of the Brexit vote last June, when it plunged more than 10%.
Some analysts say that might reflect the diminishing prospect of a "hard" Brexit.
Former Business Secretary Sir Vince Cable said "the whole Brexit approach will have to be rethought".
Sir Vince is returning to the Commons after regaining the seat of Twickenham in southwest London for the Liberal Democrats.
Domestically, some commentators are suggesting that the Conservative government's long-running austerity programme, which has seen public spending constrained in a bid to cut UK debt, may be over.
But Jim Leaviss, from M&G Investments, said: "There may be less austerity and fiscal tightening in future under a weakened Conservative Party, but there will be no significant rise in gilt issuance [government IOUs] and the goal of reducing the UK's debt/GDP over the next few years is likely to remain in place."
