Pound plunges after shock election result

It was said that if Theresa May failed to secure the enlarged majority she was looking for then the pound would fall back markedly today.

Well, she hasn't - and it has.

From the $1.30 mark against the dollar yesterday, sterling slumped to $1.2650 in early trading and was hovering around $1.27, down 1.9 per cent for the day, at the time of writing.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

It hit a seven-month low against the euro, reports the Financial Times, and was 1.8 per cent lower against the single currency at €1.1344 at around 9.30am.

In some respects, however, the pound is doing surprisingly well - analysts had expected an unwinding of the market bet on a May victory would send it below $1.25 and even lower, the Daily Telegraph says.

The reason it has defied the doubters? Brexit.

Traders were backing the pound in the event of big Tory win on the basis that would give May a mandate to pursue a softer Brexit without being beholden to a small number of Eurosceptic backbenchers.

But the Telegraph says there is now a view that a hung parliament, which could require a compromise agreement to form a government, could be the most likely way to do this.

There is also the chance of a new Tory leader who will prefer a less-hard Brexit - and, of course, there is a good chance of another general election at which all bets would be off on the winner.

Elsewhere, in what has become a familiar pattern, the pound's pain is to wider UK stock markets' gain.

The FTSE 100, whose constituents earn the majority of their earnings overseas and so benefit from a weaker pound, surged to a new record level above 7,500 this morning. At the time of writing, it was up 0.5 per cent at 7,485.

However, the FTSE 250, which is more UK concentrated, was down by around one per cent to 19,556.