The Dangers for Sterling of Rolling the Dice

Posted on the 9th June 2017 by Hamish Anderson in SME blog, Business, Founders' blog, Founder Insights

GBP, USD and EUR foreign exchange rate

As the exit polls predicted that the UK was on course for a hung Parliament, the pound dropped almost 2% against the US Dollar and the Euro in a matter of seconds.

Yahoo GBPUSD Chart UK Election

It had been clear for a while that the markets had only ever priced in a Tory victory with a majority at or around the levels indicated by the polls at the time of the announcement of the election. Any result that fell below these expectations was going  to be bad news for sterling, as the country demonstrated its lack of conviction for the Prime Minister’s stewardship of the impending Brexit negotiations.

This morning, as the inevitability of a hung Parliament became clearer, the pound extended its losses, heading for the biggest drop of the year, and giving up the boost that it received when the election was announced in April. 

The country finds itself in a weaker position to face the challenges of the next two years. Already the European Union's budget commissioner, Guenther Oettinger, has made it clear that the outcome of the election makes Mrs May a weaker negotiating partner, which will potentially hurt the outcome of the talks, even questioning the UK’s ability to start Brexit talks on schedule.

What does this mean for sterling? The heady days of your pound buying USD 1.50 or more will remain a memory, and UK businesses must prepare themselves for continued weakness and volatility as the terms of our exit from Europe, and the stance adopted by the negotiators in Brussels, become clear.

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