The pound has fallen sharply after the UK election resulted in a hung parliament.
Sterling’s value had dropped overnight, and as trading got under way in London it slipped further, standing 1.7% lower at about $1.2737, with markets worried about continued political uncertainty.
Against the euro, the pound was down 1.4% at 1.1386.
However, shares were higher with the benchmark FTSE 100 index up 0.8% at 7,508.47.
A fall in the value of the pound tends to boost the FTSE 100 as the majority of companies in the index have significant operations overseas. A weaker pound means profits earned abroad are worth more when converted back into sterling.
International giants such as GlaxoSmithKline and Diageo were among the strongest risers, up more than 2%.
But shares in companies that make their money in the UK were shaken by the result.
Housebuilders saw falls of up to 5%, while retail companies’ shares also fell as a weaker pound makes imported goods more expensive.
Analysts said the uncertainty could add to the squeeze on consumers’ spending power.
Nicholas Hyett, from Hargreaves Lansdown, spelled out the problems facing a host of companies: “Housebuilders are down across the board, but they’re joined by restaurants, high street banks, fashion retailers and media outlets.
“The implication is clear, consumer’s disposable incomes are expected to be stretched, and big ticket items, like property upgrades, as well as little luxuries.”
Traders had been expecting a clear victory for Theresa May’s Conservative Party, but are now concerned about political uncertainty.
The Conservatives are still the largest party but will be short of the numbers needed to be fully in charge.
While the pound’s move is significant, it is far less striking than that seen in the aftermath of the Brexit vote last June, when it plunged more than 10%.
Some analysts say that might reflect the diminishing prospect of a “hard” Brexit.
Mark Dampier, head of investment research, at stockbrokers Hargreaves Lansdown said: “This is very different to the Brexit vote of last year.
“While the result is a surprise and may lead to another election later this year – market reaction has generally been subdued so far because the Tory government will remain in power but a hard Brexit now looks less likely… a softer Brexit could see sterling recover.”
Former Business Secretary Sir Vince Cable said “the whole Brexit approach will have to be rethought”.
Sir Vince is returning to the Commons after regaining the seat of Twickenham in southwest London for the Liberal Democrats.
Domestically, some commentators are suggesting that the Conservative government’s long-running austerity programme, which has seen public spending constrained in a bid to cut UK debt, may be over.
But Jim Leaviss, from M&G Investments, said: “There may be less austerity and fiscal tightening in future under a weakened Conservative Party, but there will be no significant rise in gilt issuance [government IOUs] and the goal of reducing the UK’s debt/GDP over the next few years is likely to remain in place.”-BBC
