Sterling gets pounded

The only thing to suffer a worse evening than Theresa May was the Pound Sterling, which experienced its largest single day drop of the year.

The currency suffered losses between one and two per cent against all of its peers. It dropped 1.6 per cent against the US dollar and 1.5 per cent against the Euro. The pound is now worth about $1.2751 and €1.1385 (as of 7am).

The short-term outlook points to higher volatility.

Sterling lost 1.5 per cent against the Swiss franc and Canadian dollar. Against the Australian dollar and Japanese Yen it fell 1.4 per cent.

Exit polls released just as the polls closed at 10pm last night sent the pound into its initial downward spiral. This unnerved currency traders in the Asian markets, which opened at 9 am JST (midnight GMT).

According to Dean Turner, an economist at UBS Wealth Management, the pound will likely return to its pre-election value rate as increased volatility makes the currency less appealing to investors.

“The short-term outlook points to higher volatility,” he told the Financial Times. “In the first instance, it is likely that the pound will give up the bulk of its post-election announcement gains.”

Pound Coins from Flickr via Wylio
William Warby

Gary Howes, editor of Pound Sterling Live (a website dedicated to tracking the currency), believes these fluctuations are bad for both the currency and markets in the short run.

“Big fluctuations are destabilising for businesses that import and export as it introduces significant risk into their business models,” he said.

These uncertainties are often passed on to consumers in the form of higher prices.

However, some analysts believe that a hung parliament could actually be positive for the pound in the long run as this new political development could lead to a soft Brexit.

This would make investors more confident in the future of the currency outside of the EU.

In the immediate term, the pound could fall sharply until there is further clarity.

Currency analysts and traders will be waiting for the European markets to open this morning and Theresa May’s much anticipated speech, set to take place at 10 am.

Based on what they see and hear the pound could either recover slightly or continue to fall.

“Without question there is volatility ahead. The market is desperate for any indication of what a Brexit deal might look like,” Lee Hardman, an analyst at MUFG, told the Financial Times. “In the immediate term, the pound could fall sharply until there is further clarity.”

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