Pound Extends Drop as U.K. Political Chaos Adds to Brexit Stress

  • Uncertain domestic backdrop outweighs soft-Brexit view: Mizuho
  • Pound falls as Moody’s says U.K. election result raises risks

British Pound Drops After U.K. Election Surprise

The pound fell against all its Group-of-10 peers on the prospect of an unstable coalition government heading into Brexit talks with the European Union in a week’s time.

Sterling extended Friday’s 1.6 percent slide against the dollar, which was the biggest one-day loss since October and came after the June 8 election resulted in a hung parliament, the worst scenario for the currency according to analysts in a Bloomberg survey. Prime Minister Theresa May is trying to form a new government with the backing of Northern Ireland’s Democratic Unionist Party after the Tories fell short of an overall majority. Formal Brexit negotiations are currently slated to start on June 19.

“Political and economic uncertainty is a straight sell for a currency,” said Neil Jones, head of hedge-fund sales at Mizuho Bank. While the shift from a perceived “hard” to a “softer” Brexit should ideally support the pound, Jones said he predicts the pound to “continue to trend lower as an uncertain domestic backdrop will likely deter investment and outweigh soft Brexit-related buying.”

The pound fell 0.4 percent to $1.2692 as of 11:29 a.m. in London. It fell as low as 1.2636 on Friday, the lowest since April. Sterling depreciated 0.6 percent against Europe’s common currency to 88.37 pence per euro, approaching Friday’s 88.60 pence that was its weakest level since November.

Moody’s Investors Service said on Monday that the U.K. election result increases fiscal risks and will hamper Brexit talks. This outcome is credit-negative for the nation, the ratings company said in an emailed report.

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