Questions raised
Pound dives as U.K. enters new period of uncertainty
The pound fell sharply after Britain’s election saw the Conservatives lose their majority in parliament, raising questions about the next government’s ability to lead the talks to leave the European Union.
The British currency lost as much as three cents against the dollar by Friday as the results confirmed exit poll predictions that Prime Minister Theresa May had failed in her gambit to gain a stronger majority for those Brexit talks.
The pound fell as low as $1.2636 from $1.2955 on Thursday, before recovering slightly to trade at $1.2737. The currency has been highly volatile in the last year, from $1.50 a year ago before the Brexit vote to below $1.18 briefly in October. Above all, investors are worried about the general uncertainty surrounding the country – whether a bruised May will be able to govern effectively or whether she may eventually resign. On Friday, she said she will try to form a minority government with the support of a small Northern Ireland party,
“The big picture is that political uncertainty could take weeks or months to be resolved and it is likely to weigh on both financial markets (in particular the pound) and the economy,” said Paul Hollingsworth, economist at Capital Economics in London.
As the dust settles, one issue will become the focus for investors: whether Britain is more or less likely to retain privileged access to the EU’s single market. Exports of goods and services account for about 27 per cent of the British economy, with almost half of exports going to the EU.