Pound Drop Masks Otherwise Chipper Mood After UK Election

2017-06-09 06:32:00

Talking Points:

British Pound sinks as UK election results in “hung parliament”
FTSE 100 futures hint at upbeat market mood after the vote tally
Hopes for “softer” Brexit may account for investors’ optimism

The British Pound suffered heavy losses in Asian trade. The currency plunged early in the session, losing nearly 2 percent on average against its major counterparts after an exit poll following yesterday’s UK general election predicted that no party will win an outright governing majority.

Interestingly, Sterling would end up treading water through the remainder of the session even as a steady stream of results confirmed that the vote will result in a so-called “hung parliament”. Further still, FTSE 100 futures are pointing optimistically higher having dropped as much as 0.76 percent earlier the day.

This is a curious outturn. One might have expected that prolonged horse-trading to cobble together a ruling coalition and perhaps even the prospect of another election before long would unnerve investors – especially with Brexit negotiations on the horizon – and drive an exodus from GBP-denominated assets.

Perhaps investors’ chipper mood reflects a sense that the election marked a rejection of the “hard Brexit” vision of Prime Minister Theresa May, with whatever coalition government emerges likely to take a softer stance that is less disruptive to the pre-referendum status quo.

With little else of note on the calendar through the end of the trading week, the markets may be preoccupied with digesting the UK election outcome. If hopes for a “soft Brexit” are in fact the main takeaway, the anti-risk Japanese Yen be pressured and the Euro might find a bit of support.

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Asia Session