The pound has suffered heavy losses in volatile trading, as the impact of Britain’s inconclusive general election ripples through the City.
Sterling tumbled over three cents against the US dollar this morning to an eight-week low of just $1.265, putting it on track for its worst daily loss since the EU referendum.
It also slumped to a seven-month low against the euro, at just €1.13, as investors warned that Theresa May could be forced to resign after failing to secure a majority.
But the pound is now clawing its way back, after May seemingly secured a deal with the Northern Irish DUP for a “confidence and supply” arrangement that can keep her in Downing Street.
Theresa May is heading to Buckingham Palace right now, to ask the Queen for permission to form a new government.
Sterling is currently trading at $1.275, down two cents or 1.5% since the exit polls struck, after a wild morning.
Connor Campbell of City firm SpreadEx says the DUP deal has calmed the City, a little:
The pound gradually pulled back from the brink this morning, though the currency still finds itself in a very bad way following the shock general election result.
As expected, Theresa May appears to have made an agreement with the DUP, whose 10 seats in Northern Ireland would allow the Tories to just about manage a parliamentary majority. While the pound is obviously pleased that May is set to visit the Queen at midday to seek permission to form a government – therefore likely avoiding another election in a few weeks times – the unstable nature of such a government, and what that means for the Prime Minister’s ability to negotiate with the EU, has only seen sterling erase the top layer of its losses.
Several major City firms have also voiced their concerns:
Many UK companies have suffered losses on the stock market today; shares in housebuilders and banks have fallen, due to concerns that the UK economy will struggle.
Royal Bank of Scotland are the biggest faller on the FTSE 100, down 3.2%, followed by building firms Barratt Developments and Taylor Wimpey.
Retailers such as M&S and Next have also dropped, on fears that a weaker pound will drive up inflation, hurting consumer spending.
Utility firms has risen, though, as the threat of being nationalised by Jeremy Corbyn seems to have faded.
After jumping in early trading, the FTSE 100 has dipped back — currently up 34 points, or 0.5%, at 7484 points.
Multinational companies who will benefit from cheaper pound are rallying, such as drinks firm Diageo and fashion chain Burberry.
The FTSE 250, which is a better gauge of the UK economy, has shed 100 points or 0.5% to 19639.
Business leaders are extremely unimpressed by the situation; the British Chambers of Commerce says it’s essential that the UK has a functioning government, while the CBI urged Westminster to get its house in order.
Credit rating agencies are also watching the situation closely; S&P has warned that Britain’s credit rating could be cut.