It's a hung parliament and Theresa May has made one of the worst decisions in UK political history, when she called a snap election while she sat on a 22 point lead in the polls and a 33 seat majority in parliament. After a night of high drama Theresa May comes away barely clinging on to her job, and searching not only for answers but for allies to form a government. It’s a hung parliament, with the PM in trouble and Brexit plans in tatters.
The reaction of the pound has been an interesting and fairly obvious one, as as soon as we saw the exit poll predict a hung parliament we saw the pound plummet against the euro and the US dollar, gapping and hitting lows of 1.2684. The problem now is that the uncertainty of a hung parliament, questions over who will be PM as well as which parties form a government leave us with huge uncertainty and the prospect of more downside to come the longer the uncertainty continues.
Expectations are that Theresa May will not resign from her position as Prime Minister but instead insist that she is focussing on forming a government as the country sits in political limbo. The longer we sit in this limbo the more chance there is for downside in the pound and the FTSE.
The reaction last night in the markets on the exit poll saw sterling drop by over 200 points, hitting lows of 1.2704 before rallying back higher. This was a normal and expected reaction as anything that showed Labour doing well was going to see the value of the pound fall. However what we always see in situations like this is a secondary move, and that saw GBPUSD rally back to just above the 1.2800 level, before the exit poll we were trading at 1.2930. However the clearer the picture got the more we saw the risks of revisiting the lows and creating new ones.
The FTSE has also seen a similar move that has shown initially downside in futures before a rally back. One thing we can mention about the results we have seen so far in the north east have shown a better performance for the Conservatives. However whatever way the swing goes, if the exit poll is in anyway correct then this will be a poor result for Theresa May and would make her decision to call a snap election one of the worst political decisions in history.
However as the night has moved on the bookies have changed their view and now have Jeremy Corbyn as favourite to be Britain's next Prime Minister. Although this is still very close it is clear that the higher turnout has helped the Labour cause. After the initial recovery in the pound it seems we now look to every result and swing for a movement or recovery in the GBPUSD price.