LONDON – The British pound is dropping sharply in overnight trade on Thursday after the exit poll suggested that no party will win a majority in the House of Commons after 2017’s general election.
The exit poll, which in recent elections has proved to be a fairly accurate forecast of the official result, showed Theresa May’s Conservative Party as the biggest individual party, heading for 314 seats in the House of Commons, 12 short of a majority.
Jeremy Corbyn’s Labour Party are projected to be the second party, on 266 seats.
Of course, the exit poll could be wrong, but investors have taken its findings as evidence that Britain is headed for a hung parliament, meaning a government will not be formed immediately, as would be the case if a majority was won.
Consequently, soon after 10.00 p.m. BST (5.00 p.m. ET) sterling is down sharply against the dollar to hit 1.2795, as the chart below illustrates:
The rationale behind this move is simply that markets dislike political uncertainty, so the prospect of a period without a government, particularly as the UK heads towards the beginning of formal Brexit negotiations, is not a nice one for investors.