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Pound dives as Britain thrown into uncertainty by shock vote

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Traders work on the trading floor of ETX Capital in London on June 9, 2017, as markets open the day after Britain held a general election, in which the ruling Conservatives lost their parliamentary majority. With Brexit talks due to begin in just over a week, Britain’s shock election results may soften the government’s strategy — if there is even a government formed to negotiate in Brussels by then. The pound fell sharply amid fears the Conservative leader will be unable to form a government and could even be forced out of office after a troubled campaign overshadowed by two terror attacks. / AFP PHOTO / Glyn KIRK

The pound plunged two percent Friday as Prime Minister Theresa May lost her majority in Britain’s general election, fuelling political uncertainty just days before the start of Brexit talks.

May had called the snap vote in a bid to boost her party’s hold over Westminster and give her a stronger hand in talks with EU leaders over the country’s detachment from the bloc.

However, the leftist Jeremy Corbyn’s Labour Party slashed the ruling Conservatives’ lead, leaving the country with a hung parliament and political instability for the second time in seven years.

The pound dived from $1.2959 to $1.2674 after it was confirmed the Conservatives had lost their majority. It also sank almost two percent against the euro.

However, London’s FTSE 100 opened 0.7 percent higher as the weaker pound helps international firms listed on the index.

Craig Erlam, London-based senior market analyst at OANDA, said: “A hung parliament is the worst outcome from a markets perspective as it creates another layer of uncertainty ahead of the Brexit negotiations and chips away at what is already a short timeline to secure a deal for Britain.”

The outcome will throw Britain once again into upheaval less than a year after the country’s decision to leave the EU, which led the pound to collapse about 15 percent against the dollar between June and October 2016.

– ‘Local difficulty’ –
However, Minori Uchida, head of global market research at Bank of Tokyo-Mitsubishi UFJ, told AFP: “May’s setback could lead to a soft Brexit, which is not so bad for the British economy in the long run”.

While the pound has come under fresh pressure Asian stock markets were mostly higher as traders took the prospect of chaos in Britain in their stride.

Testimony from sacked FBI boss James Comey that Donald Trump asked him to drop a probe into former national security advisor Mike Flynn had little effect.

“James Comey’s testimony was pretty forthright and genuinely questioned the president’s conduct,” said Greg McKenna, chief market strategist at AxiTrader.

“But it didn’t appear to have any fresh revelations which could increase the chances of the impeachment of President Trump.”

But he added that it was likely to stall the president’s agenda to boost growth with tax cuts, big infrastructure spending and deregulation.

Tokyo rose 0.5 percent, Shanghai added 0.3 percent and Singapore gained 0.4 percent while Seoul was up 0.8 percent. Sydney was flat.

However, Hong Kong dipped 0.1 percent a day after ending above 26,000 for the first time in almost two years.

“Even though we’re seeing higher sterling volatility, there’s even less prospect of that spilling into broader markets,” Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, told Bloomberg TV.

“This is still a little local difficulty rather than an event of global proportions.”

Paris rose 0.3 percent and Frankfurt was flat.

– Key figures around 0810 GMT –
Pound/dollar: DOWN at $1.2674 from $1.2959

London – FTSE 100: UP 0.6 percent at 7,503.14

Tokyo – Nikkei 225: UP 0.5 percent at 20,013.26 (close)

Hong Kong – Hang Seng: DOWN 0.1 percent at 26,030.29 (close)

Shanghai – Composite: UP 0.3 percent at 3,158.40 (close)

Euro/dollar: UP at $1.1200 from $1.1211

Dollar/yen: UP at 110.46 yen from 109.81 yen

Oil – West Texas Intermediate: DOWN four cents at $45.60 per barrel

Oil – Brent North Sea: DOWN five cents at $47.81 per barrel

New York – Dow: UP less than 0.1 percent at 21,182.53 (close)



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