The pound took a battering yesterday after British Prime Minister Theresa May’s Conservative Party lost its parliamentary majority in elections, potentially disrupting Brexit negotiations.
Sterling fell 2 percent to US$1.2698 after sliding as much as 2.5 percent to US$1.2636 in early European trade, its weakest level since April 18.
May faced calls to quit after her election gamble to win a stronger mandate backfired, leaving no single party with a clear claim to power just 10 days before the start of negotiations on Britain’s divorce from the EU.
Photo: AFP
“The market wants more clarity now in terms of who is going to be prime minister, what form the government is going to take and ultimately how all that feeds through into upcoming Brexit negotiations,” Mitsubishi UFJ Financial Group Inc currency strategist Lee Hardman said in London. “In the near term the increased political uncertainty and the risk of more disorderly Brexit negotiations should enforce pound weakness.”
Reactions in other major currencies, such as the US dollar, euro and yen, were limited.
They had already largely shrugged off Thursday’s testimony by former FBI director James Comey, which had been seen as the week’s other big event.
“Other currencies, like dollar/yen, are not reacting much as it is a more domestic affair this time, unlike last year’s Brexit vote,” said Koji Fukaya, president at FPG Securities Co in Tokyo. “The focus for the broader currency market will now shift toward the [US] Federal Reserve’s policy meeting next week.”
The Fed is widely expected to hike interest rates after it ends a two-day meeting on Wednesday and the focus is on whether it would leave the door open for further monetary tightening in the months to come.
The US currency was up 0.3 percent at ¥110.365 yesterday.
The euro extended overnight losses and was 0.2 percent lower at US$1.1193, off a seven-month high of US$1.1285 touched a week ago on improved growth prospects in Europe and a broadly weaker US dollar.
However, the common currency was capped after the European Central Bank on Thursday cut its forecasts for inflation and said policymakers had not discussed scaling back its massive bond-buying program.
Separately, a hung parliament in the UK is translating into losses for one of Asia’s richest men.
Li Ka-shing’s (李嘉誠) CK Hutchison Holdings Ltd (長和集團) and Cheung Kong Infrastructure Holdings Ltd (長江基建) were among the biggest losers in Hong Kong trading, as the slumping pound cut the value of the companies’ UK earnings.
Li has much riding on Britain as the country is the biggest profit generator at the billionaire’s business empire.
He operates Superdrug and Savers stores, ports, the Three telephone service, as well as gas and electricity distribution.
His Hong Kong-based flagship CK Hutchison generated 36 percent of its total earnings before interest and taxes from Britain last year.
The billionaire last year said that the fallout from the nation’s decision to leave the EU would last for years.
Additional reporting by Bloomberg
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