London (June 9, 2017): Sterling dived and the FTSE share index was set to fall 1 per cent on Friday after a shockingly bad election result for Prime Minister Theresa May plunged Britain into political chaos days before the start of Brexit talks.
The surprise of a result that raises questions about how Britain will advance with its plan to leave the European Union, and whether any party can form a stable government, initially sank the pound by 2pc against both the dollar and euro.
With May’s ability to form a government uncertain for much of the night, the pound steadied in Asian trading before falling sharply again as London traders arrived at their desks around 0530 GMT.
British gilt yields also fell as investors sought the security of government bonds in the face of the uncertainty while spreadbetters predicted London’s main FTSE 100 stock exchange index would fall 1 percent at the opening.
By 0530 GMT, sterling was 1.5pc lower on the day at $1.2753 ─ having fallen as low as $1.2693 ─ and 87.78 pence per euro.
Falls for sterling have tended to support London’s internationally-focused FTSE 100 blue chip index. With trading volumes still extremely thin, official FTSE futures were up around 0.2pc, having earlier fallen by a similar amount.
An up-to-5-percentage-point fall in gilt yields, however, suggested shocked investors would seek the security of bonds when markets reopened properly in London.
Investors’ traditional views of whether the Conservatives or Labour would be good or bad for the pound, have been muddied in this election, not least by the prospect of Brexit talks due to start on June 19.
Some banks have said a high-spending Labour government could spur economic growth and cause the Bank of England to raise interest rates more quickly.
Some also argue that any Labour-led coalition might aim for a softer deal on Britain’s planned departure from the European Union than the “hard Brexit” that markets have worried May would deliver.
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