Sterling steadies, Tories tumble

UK general election result impacts Brexit talks

Sterling steadied this week as British Prime Minister Theresa May failed to win a Conservative Party majority after a disastrous snap UK general election on Thursday, a result expected to disrupt Brexit negotiations set to start in just several days.

Sterling last traded at $ 1.2756, edging up 0.1 percent on Monday. On Friday, it slid 1.7 percent, its biggest one- day drop in around eight months.

The pound’s 2.5 percent decrease in the previous session, its lowest since mid- April, is a ramification of the shock hung parliament result from Thursday’s election, whereby no single party won a clear claim to power – a result red- flagged by some analysts as the worst possible election outcome due to uncertainty.

May is now trying to unite a disillusioned party around her, not only to support her in the Brexit talks, but also to strike a deal with the Demo- cratic Unionist Party, a small, rightwing unionist party in Northern Ireland, that will enable her to stay in power.

“There is still heightened uncertainty surrounding issues, including how the [ British government’s] stance towards Brexit talks might change,” said Shinichiro Kadota, Senior FX Strategist for Barclays in Tokyo.

“The lack of moves [ in sterling] is more because the market is waiting for fresh information, rather than a sign that it is settling down,” he said.

As investors with long positions move back to a neutral stance due to the UK’s current precarious political situation, sterling, as a result, has of course retreated. However, Andrew Milligan, Edinburgh- based head of Global Strategy for Standard Life Investments, insists there is no reason to expect further weaknesses simply because of the election result.

On valuation grounds, sterling is about fair value versus the other major currencies, so to see a much cheaper currency would require considerable new information on either the state of the UK economy or on the state of Brexit negotiations, continued Milligan.

Milligan added that it is “far too soon” to say how the election results may affect the Brexit talks.

The euro edged up 0.1 percent to $ 1.1208, staying below a seven- month high of $ 1.1285 set in early June.

The euro showed little reaction after projections, following the first round of French parliamentary elections on Sunday indicated that President Emmanuel Macron’s fledgling party would secure a huge majority, an outcome in line with expectations.

The dollar held steady at 110.29 yen, having retreated from Friday’s one- week high of 110.815 yen.