UK hung parliament sends pound into a spin

The exit polls have been released, and it’s not looking good for Theresa May, who appears to have lost the Conservative’s majority in Parliament. The exit polls, commissioned by the main UK broadcasters, suggest that the Tories will win 314 seats, Labour will win 266 seats.

GBP/USD has fallen 200 pips on the back of this result. Exit polls in the UK tend to reasonably accurate, however, in 2015 the exit poll also suggested that the Tories wouldn’t win an overall majority, however once the votes were counted they were home and dry with a slim majority, so there is a chance that Theresa May could still hang onto Number 10.

However, if she fails to get 326 seats, it is not clear that she would be able to form a coalition government, even if she teamed with the Northern Irish DUP party. Labour, the Liberal Democrats, the SNP and Plaid Cymru could also form a Progressive Alliance, if they are willing to work together. Thus, at this stage of counting, the outcome of this election is impossible to predict, and we can’t see how the pound could stage a recovery on the back of this.

Rumours are circulating that the Home Secretary Amber Rudd could lose her seat in Hastings, which would not bode well for Conservative prospects.

At this stage, the uncertainty is likely to keep pressure on the pound tonight, which has fallen to the base of its recent range. In GBP/USD 1.2530 – the low before the election was called – is a key support level. Right now, the market is not in panic mode, but it is shell shocked by this result.

Overall, what is it with Conservative Prime Ministers calling elections and referendums and failing to win? If the Conservatives can’t form a majority, this will be another political miss-step from the Tories who seem to be on a kamikaze mission to catapult themselves out of power once they get their foot in the door.