Pound sterling slips again after slumping in aftermath of UK election

UK currency fell around 2 per cent, after exit polls predicted that the Conservative party would suffer a major blow in Thursday’s vote

‘A hard Brexit is almost a given,’ UniCredit’s chief UK economist wrote in a note to clients (Thomson Reuters Eikon)

On Monday the pound slipped again against the US dollar and the euro, with investors still spooked by uncertainty after last week’s general election resulted in a hung parliament, just days ahead of official Brexit negotiations kicking off.

In late afternoon trading, sterling was changing hands at around $1.2655 against the dollar, down around 0.7 per cent. It had already fallen around 2 per cent after exit polls showed the Conservative party might suffer significant losses in Thursday’s vote, and failed to recover when the final result confirmed that the Tory party had not secured an outright majority.

The pound has lost more than 14 per cent against the dollar since last June’s Brexit vote, and even though some strategists indicated on Friday that a hung parliament could lead to a softer Brexit, which in turn might support the pound, many have remained sceptical.

“A ‘hard’ Brexit is almost a given,” wrote Daniel Vernazza, UniCredit’s chief UK economist, in a note to clients. “With Theresa May weak, the hard-line Eurosceptics in the Conservative party, who are more organised than the Remainers, will be able to take the Prime Minister hostage in their pursuit of a hard Brexit.

“There isn’t any realistic prospect of this chaos leading to a rethink of the Brexit decision for the country.”

Cosimo Marasciulo, of Pioneer Investments, said that it’s hard to predict the pound’s path going forward. Given all the uncertainty, however, he said that it “would probably remain underweight, particularly against the euro”.

Stephen Martin, director general of the Institute of Directors, said on Monday that it’s “hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy”.

The FTSE 100 was trading around 0.2 per cent lower this morning, having jumped around 1 per cent on Friday. The index is largely made up of multinational corporations who generate much of their revenue outside of the UK, meaning that a fall in the pound tends to support those companies’ share prices.

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