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Foreign Exchange

FX: Weaker sterling here to stay

From strong and stable to weak and jittery, the pound bore the brunt of the surprise UK general election result, but despite May’s quick move to form a working coalition government, sterling will likely stay soft, say analysts.

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Sterling’s fortunes have reversed since the announcement of the snap election in mid-April, burning those who had priced in an appreciation of the rallying pound.

Prime minister Theresa May was predicted to comfortably win a Conservative majority, but seven weeks is a long time in politics, and the Tories ended up scoring an own-goal by losing 13 seats.

The result left a hung parliament, as no party won enough seats – 326 or more – to secure an outright win. The Conservatives won the majority of the vote – 318 seats versus Labour’s 262 seats – and are working on building a coalition with Northern Ireland’s Democratic Unionist Party.

Regardless, analysts say sterling is on shaky ground.

Cable – the pound against the dollar – fell from a pre-election level of $1.2956 to $1.2653 in the early hours of Friday, before cautiously rebounding.

Hetal Mehta, senior European economist at Legal & General Investment Management, says: “The sterling/US dollar exchange rate is currently hovering close to $1.27 as markets appear to have been anticipating a larger majority.”

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