Pound struggles to recover after shock British vote

Published 13.06.2017 01:03

The pound struggled to bounce back yesterday from last week's sharp losses triggered by a shock British election result that has thrown the country into uncertainty.

The sterling took a beating on Friday after Prime Minister Theresa May's ruling Conservative Party lost its Westminster majority, days before it starts crunch talks with the EU on exiting the bloc.

May called the election three years early in a bid to strengthen her hand in looming Brexit negotiations, but the gamble backfired spectacularly and now she must rely on the support of Northern Ireland's Democratic Unionist Party.

"With May's leadership teetering on the brink, the U.K. steps ever so closer to the calamitous Brexit cliff edge scenario," Stephen Innes, senior trader at OANDA, said in a note. "Certainly, prolonged uncertainty would argue for a deeper correction on sterling as May's diminished Brexit mandate scenario plays out."

The pound sank to a seven-week low of $1.2636 at one point Friday before recovering slightly. In Asian trade yesterday it was at $1.2729.

On equity markets technology firms tumbled, in line with losses in New York, where the Nasdaq was dragged down by big losses in big-name firms including Apple, Microsoft and Google parent Alphabet.

In Tokyo, Sony lost 1.2 percent and Sharp dived more than three percent, while in Seoul Samsung lost 1.6 percent. Hong Kong-listed Tencent was more than two percent off.

On broader markets Tokyo ended 0.5 percent down, while Hong Kong shed 1.2 percent and Seoul gave up one percent. Taipei slipped 0.9 percent and Shanghai closed 0.6 percent down.

"There's a chance U.S. internet technology stocks that have propelled a global stock rally will now serve as a buzz kill," Mitsuo Shimizu, deputy general manager at Japan Asia Securities in Tokyo, told Bloomberg News.

Analysts described the movements as a rotation, in which investors were taking profits from highly valued sectors and putting the funds in areas that have underperformed, such as financials, energy and retailers. Dealers are now waiting for the Federal Reserve's next policy meeting, which ends Wednesday. While the central bank is widely expected to raise interest rates, its post-meeting statement will be pored over for clues about policymakers' plans for future increases and their view on the world's top economy.

The euro edged up slightly as it became clear that the party of new French President Emmanuel Macron was heading for a huge majority after Sunday's first round of voting for the National Assembly.

In early European trade London slipped 0.5 percent, Paris eased 0.4 percent and Frankfurt was off 0.3 percent.

Share on Facebook Share on Twitter