Belfast Telegraph

Thursday 24 July 2014

Sterling falls over fears of political uncertainty

Sterling fell more than a cent against the dollar after last night's exit poll as fears over a hung Parliament prompted traders to bail out of sterling.

The pound dropped from $1.486 before the crucial 10pm forecast to $1.474 — suggesting some investors are worrying about the impact of no clear election decision and its impact on tackling the UK's massive deficit.

Sterling also fell against the euro, down from €1.174 before the poll, to €1.168.

The pound initially ticked up marginally against the currencies as some investors took heart from a strong Tory showing, but they dropped back down soon afterwards.

Michael Hewson, currency analyst at CMC Markets, said: “I think the fact that there looks as though there will be a hung Parliament is now firmly in people's psyche.

“We are basically seeing people say: a hung Parliament — don't like that, sell sterling.

“There is a lot of uncertainty about the horse-trading between the parties that will follow one party not having a clear majority.”

Of the initial upswing for the pound immediately after the exit poll, he said: “Essentially, the markets want to see a Tory majority. The perception is that you have a safer pair of hands on the tiller. Anything else brings the risk of a look at the country's credit rating.

“But you are going to get a bit of movement like this in the twilight zone between the exit poll and the result.”

Traders were at their desks through the night as they digested the incoming results from around the country.

Markets were buffeted by the Greek debt crisis, with the FTSE falling more than 1.5% and the Dow Jones down about 3.20% over concerns about high levels of European government borrowing.

Justin Urquhart Stewart, director and co-founder of Seven Investment Management, said he did not think the overall UK election result would spook the market.

The London International Financial Futures and Options Exchange was expected to open at 1am today — more than six hours early — to satisfy demand from banks and hedge funds.

Traders will be looking to hedge their positions should the unexpected happen — as well as potentially dumping Government bonds and the pound if predictions of a hung Parliament are realised.

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