Pound Sterling Capitulates After Exit Poll Shows Leaderless Country
The Pound to Dollar sank over 2.0% following election exit polls which showed the Conservative party gaining the most seats but still remaining short of an overall parliamentary majority.
The Pound drove off a cliff after the announcement of the poll results, which are widely considered reliable forecasters of the eventual result, falling from the 1.29s to a low of 1.2708.
The Pound to Euro rate likewise sold off heavily from a pre-poll level of 1.1556 to a low of 1.1337.
The official exit poll predicted the Conservatives would gain only 314 of the 650 constituencies in the British Isles – 17 less than their current number.
The same poll predicted Labour getting 266, the Scottish National Party 34, Liberal Democrats 14, Plead Cymru 3 and the rest 18.
Exit polls have been very accurate in predicting the final result in the previous three elections, with the least accurate in 2015 when they under-predicted the Conservative majority by 14 seats – a still not completely terrible forecast nevertheless.
The fall in the Pound was put down to the uncertainty caused by the possibility of a hung parliament, despite some analysts arguing such an outcome might be positive for Brexit negotiations as it would soften the Conservatives’ hard line.
“With the UK General Election exit poll suggesting that no party is set to gain an overall majority, the economy looks set to face a period of uncertainty about the outlook for policy, Brexit and the possibility of another election,” remarked Capital Economics’ Paul Hollingsworth.
Hollingsworth notes that Theresa May would be most likely to form a coalition with the ideologically led Ulster Unionists to form a “workable minority government”.
He also points out that even if Labour formed a progressive alliance with the Scottish Nationals and the Liberal Democrats that would also only give them 314 seats like the unaligned Conservatives.
“A workable Labour-led “progressive alliance” may also be tricky - given that the exit poll suggests that Labour, the Liberal Democrats and the Scottish National Party would also have just 314 seats combined. If no working government can be formed (the first test would be trying to pass a Queen’s Speech) then there would need to be another General Election.”
Theresa May might also resign if the exit polls are right since she will have spectacularly failed in her express desire to gain a stable mandate with which to take the country into Brexit negotiations.
Regardless of the political machinations, however, from the perspective of the financial markets the exit polls have described quite possibly the least stable outcome.
"A hung parliament is the worst outcome from a markets perspective as it creates another layer of uncertainty ahead of the Brexit negotiations," said Craig Erlam, a market analyst with brokerage Oanda in London.
"Sterling looks very vulnerable to further downside. It could be another very bad night for the pound,” he added.
