Flight shares soar as pound sinks after election shock

The value of pound sterling has fallen sharply after the United Kingdom general election produced a hung parliament. For the latest updates, click.The exit poll predicted the ruling Conservatives would claim 314 seats in the 650-member parliament and the opposition Labour Party 266, leaving no clear victor when markets had assumed May would easily increase her majority.Betting agencies were already taking wagers on whether May would lose her job, and one even had Labour leader Jeremy Corbyn as favourite to become PM."It's clear that the election is a humiliation for the Tories, who blew a massive poll lead in just a few weeks", said Sean Callow, senior currency analyst at Westpac. "I think we want to see stability in the domestic political scene, especially at this really important moment when we are heading into Brexit negotiations and we need to have a government that is really fit for heading into that and the risk is that if we have a coalition or we have a minority government we just dont have that stability at home to take on Brexit", he continued.

The exit poll predicted the ruling Conservatives would win 314 seats in the 650-member parliament and the opposition Labour Party 266, meaning no clear victor.

"Investors will await more clarity on who will be running the country and who will be in charge of the Brexit negotiations", said Valentin Marinov, head of Group -of-10 foreign-exchange strategy at Credit Agricole's corporate and investment banking unit in London.

As reported at 11:03 am (BST) in London, the GBP/USD was trading at $1.2912, a gain of 0.08%; earlier, the pair had hit a session peak at $1.29506 while the low was at $1.28928.

Friday's climb for the FTSE 100 came after the pound for a while sank below $1.27 (http://www.marketwatch.com/story/pound-tumbles-to-7-week-low-as-uk-exit-poll-points-to-hung-parliament-2017-06-08), hit hard after early indications pointed to the Conservative Party struggling to hold onto control of government.

Connor Campbell, financial analyst at spread betting firm Spreadex, said: "Though the current chaos is bad news for the instability-averse pound, if it leads to a softer Brexit it may end up working in the currency's favour".

But others were more cautious on equities. Expecting the unexpected is now de facto and we continue to be positioned in non-sterling assets, which will benefit our portfolios in the short term. That said remember a softer Brexit could see sterling recover.

Sterling fell as much as 2.5 per cent, which in turn gave a strong boost to British companies which sell outside their country, boosting the FTSE by more than 1 per cent.

In commodity markets, spot gold was 0.3 per cent lower at $1,274.45 an ounce.

This is assuming that May actually remains in power; expectations are that she will be ostracised by her own party for the massive election backfire, which could lead to a vote of no confidence or her resignation.

"Theresa May's decision to call a snap election also derailed a number of key personal finance policies which were previously in train but got omitted from the Finance Bill".

Mark Dampier, head of investment research at Hargreaves Lansdown, commented, 'This is very different to the Brexit vote of past year.

"Traders immediately indicated their nervousness by selling the pound" added ADS Securities Analyst, Konstantinos Anthis, "which initially dropped 2%". The euro was little moved against the US dollar at $1.1204.

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