British pound tumbles as UK election gamble fails

The pound plunged Friday as Prime Minister Theresa May’s Conservatives lost their parliamentary majority in Britain’s general election, fuelling political uncertainty just days before the start of Brexit talks.

Sterling slumped to a seven-week low of $1.2636, while the euro hit a seven-month peak at 88.59 pence.

However, that propelled the London stock market higher as the weaker pound boosts multinational companies that earn in currencies other than sterling. Investors also brushed off news of a monthly rise in industrial output.

May had called Thursday’s snap vote in a bid to boost her Conservative party’s hold over parliament and give her a stronger hand in upcoming talks with EU leaders over the country’s detachment from the bloc.

However, leftist Jeremy Corbyn’s Labour Party slashed the Conservatives’ lead, leaving the country with a hung parliament.

That means that no single party has the 326 seats required for an absolute majority. May’s Conservatives will now rely on the support of Northern Ireland’s Democratic Unionist Party (DUP) for a working majority.

 – Conservatives lose majority – 

“The FTSE was up… as sterling fell after the Conservatives lost their majority in the Commons,” said Russ Mould, investment director at stockbroker AJ Bell.

“Prime Minister Theresa May’s gamble on a snap election to give her a strong mandate for Brexit talks failed, casting a pall of uncertainty over the forthcoming negotiations.”

With one constituency still to be declared, the Conservatives were on 318 seats — down from 331 at the 2015 general election — while Labour was on 261, up from 229.

“We may be in turmoil politically but the FTSE is finding some upside after a night of drama,” added analyst James Hughes at trading firm GKFX.

“A weaker pound helps to boost companies publically quoted in the UK and props up the equity markets.”

The election outcome throws Britain once again into upheaval less than a year after the country’s decision to leave the EU, which had already led the pound to collapse about 15 percent against the dollar between June and October 2016.

Elsewhere on Friday, French and German equities also advanced after a broadly positive session in Asia.

 – No ‘smoking gun’ –

Wall Street enjoyed overnight gains as investors shrugged off dramatic political events. It added to those gains at the opening bell on Friday.

Testimony from sacked FBI boss James Comey on Thursday that President Donald Trump asked him to drop a probe into former national security advisor Mike Flynn had little effect on sentiment.

“While it may have made uncomfortable hearing for the US President, there did not appear to be any smoking gun,” noted CMC Markets analyst Michael Hewson.

Washington nevertheless buzzed with new questions after Comey accused Trump of lies and defamation, in a gripping testimony that undermined an already troubled White House.

However, Trump on Friday claimed “total and complete vindication” after Comey revealed he was not personally under investigation in a probe into Russian interference in last year’s US election.

– Key figures around 1330 GMT – 

Pound/dollar: DOWN at $1.2724 from $1.2950 at 2100 GMT on Thursday

Euro/dollar: DOWN at $1.1173 from $1.1215

Dollar/yen: UP at 110.75 yen from 109.80 yen

London – FTSE 100: UP 0.8 percent at 7,510.39 points

Paris – CAC 40: UP 0.6 percent at 5,296.24

Frankfurt – DAX 30: UP 0.6 percent at 12,788.44

EURO STOXX 50: UP 0.5 percent at 3,580.86

New York – Dow: UP 0.2 percent at 21,227.72

Tokyo – Nikkei 225: UP 0.5 percent at 20,013.26 (close)

Hong Kong – Hang Seng: DOWN 0.1 percent at 26,030.29 (close)

Shanghai – Composite: UP 0.3 percent at 3,158.40 (close)

Oil – Brent North Sea: DOWN 2 cents at $47.84 per barrel

Oil – West Texas Intermediate: UP 4 cents at $45.68

AFP

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