As I’m sure my readers will know by now, yet again the polls were wrong and the election has resulted in a hung parliament. The Pound fell quite sharply as a result, dropping as low as €1.13 vs the Euro. However when markets opened at 8am this morning, we saw a recovery back to €1.14 so all in all, I’m surprised the reaction has not been more severe. In fact, the rate is around the same as it was on Monday, so not a complete disaster for clients that need to buy Euros. The chart below shows the GBP/EUR rate over the course of this week.
Why hasn’t the Pound fallen further?
I think part of the reason that the Pound hasn’t fallen further is that Theresa May has said she has no intention of resigning. They won many more seats than any other party (318) with only 1 more seat yet to be announced. Labour only won 261. 326 are needed for an overall majority, and with the DUP having 10, I think that the conservatives will try to form a coalition with them that would give them the outright majority they need. In order to do this, they may have to make concessions with regards to a softer Brexit, so that might help the Pound a little moving forwards.
In the here and now however, it’s that word again ‘uncertainty’ that is driving the Pound, and with Brexit negotiations supposed to start next week, it’s likely that the Pound may suffer further losses.
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