Friday, May 07, 2010

Pound slumps on news of hung parliament

The pound has slumped to its lowest level against the dollar for more than a year, with the prospect of a hung parliament facing the UK. Sterling sank more than 2% at one stage. 

The pound dipped lower by a full cent against the dollar, dropping from over $1.48 to just above $1.47 as investors bet against the UK currency, in the minutes following the exit poll released after the polling booths closed at 10pm on Thursday. Overnight there were further losses with the pound falling to as low as $1.4596.

Sterling was also sharply lower against the euro, despite the chaos surrounding the single currency over recent days. Half an hour after the polls closed, a euro was worth around 86 pence, compared with 85 pence an hour earlier.

"All in all not good for the pound, gilts or equities," said Marc Ostwald, a strategist at Monument Securities. "The constitutional position is likely to be a lot messier than the markets have been discounting."

"It is not positive for sterling," said Paul Robinson, a currency expert at Barclays Capital. "But the real attention today for markets is on the crisis in the eurozone."

A limited number of UK government bond and equity futures opened overnight to allow investors to trade in a specially extended trading session as the election results were declared. Gilt futures initially rose as a string of results appeared to suggest that the exit poll had underestimated the Conservative vote and that David Cameron would be able to command a majority. However the optimism waned in the early hours of Friday as a hung parliament looked increasingly likely.

Steve Reid, co-head of gilts trading at Citigroup, said, "Every time we get a Tory seat we rally, then if it's Labour we head the other way."

Markets were expected to endure a testy opening, since after London closed Wall Street was rocked by a technical error which briefly sent the Dow Jones to its biggest intra-day fall since Black Monday in 1987.

The FTSE 100, which closed at 5,260.99 on Thursday and is down 5.3 percent this week, opened down 1%. European bourses follow Wall Street lower, amid growing fears about the European debt crisis. Germany's DAX slid 2% and France's CAC 40 lost 2.8%. The market rout also continued in Asia with Japan's Nikkei 225 sliding 3%.

tvnewswatch, Beijing, China

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