Pound falls against dollar as pundits point to hung Parliament

Sterling fell more than a cent against the dollar after last night's exit polls as fears about a hung Parliament gripped traders.

The pound dropped from 1.486 dollars before the crucial 10pm exit poll forecast to 1.474 – suggesting some investors were worrying about the impact of no clear election decision and its impact on tackling the UK's massive deficit. Sterling also fell against the euro, down from 1.174 euros before the poll to 1.168.

The pound initially ticked up marginally against the other currencies as some investors took heart from a strong Tory showing, but dropped back down soon afterwards.

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The currency analyst at CMC Markets, Michael Hewson, said: "I think the fact that there looks as though there will be a hung parliament is now firmly in people's psyche.

"We are basically seeing people say: a hung parliament, don't like that, sell sterling. There is a lot of uncertainty about the horsetrading between the parties that will follow one party not having a clear majority."

Of the initial upswing for the pound immediately after the exit poll, he said: "Essentially the markets want to see a Tory majority. The perception is that you have a safer pair of hands on the tiller. Anything else brings the risk of a look at the country's credit rating.

"But you are going to get a bit of movement like this in the twilight zone between the exit poll and the result."

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Traders were at their desks through the night as they digested the incoming results from around the country.

Markets were buffeted by the Greek debt crisis, the FTSE 100 Index falling more than 1.5 per cent and New York's Dow Jones down about 3.2 per cent over concerns about high levels of European government borrowing.

Justin Urquhart Stewart, director and co-founder of Seven Investment Management, said he did not think the overall UK election result would spook the market.

The city analyst said: "This is quite encouraging. Short of an overall majority, the next best thing that can happen is a party having a good lead.

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"This is an encouraging start if we are going to have to deal with a hung parliament."

The London International Financial Futures and Options Exchange was opening at 1am – more than six hours early – to satisfy demand from major players such as banks and hedge funds.

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