Hung Parliament Pound Uncertainty

9 June, 2017

Paul Newfield

So, the morning after the night before provided the news that, as expected or certainly feared by many, the British public were unable to vote in a majority for either Labour or the Conservatives, and we now have the uncertain future of a “hung parliament”. Both parties will now have to bring in the negotiators to thrash out how to form the next government, with Theresa May suffering the headache of having fewer seats than before she called the campaigns.

The small gains made by Sterling over the last few days have been all but wiped out, with the Pound suffering sharp losses against the other major currencies particularly the US Dollar and the Euro, losing two cents against both, within ten minutes of last nights’ exit poll which cast an accurate shadow into the future, as has been the case in the last two general elections.

Yesterday, with markets exceptionally flat, there was no significant movement during UK trading hours despite positive Euro data including Euro GDP, which was up 0.1% for the quarter and 0.2% for the year and ECB interest and deposit rates remaining unchanged with Mario Draghi later saying in his speech that rates were to remain at present levels, rather than potential cuts, with perhaps the hint that the end to the easing program may not be as far away as previously conceived.

Today we have the distinct possibility of further volatility as there is a host of major data releases from the UK, which, after the result of the general election could cause larger market movements than normal, including Consumer Inflation Expectations, Manufacturing and Industrial Productions and Trade Balances. We have already had a mixture of positive and negative results from French and German trade and industrial output figures compounding the Pounds’ misery. With sterling currently in free-fall, if you are selling GBP and converting to other currencies it may be prudent to contact your broker sooner rather than later. As there is no simple pill to make the pain of the parliament negotiations go away, let alone the Brexit talks and how they will now proceed, there will be much that is uncertain and with uncertainty comes pressure and weakness for the Great British Pound; buy your currency today.