Pound Collapses After Inconclusive UK Election Results
By: Eddy Peng Jun 9, 2017
The pound tumbled the most since October and hit the low since April 18. Sterling dropped 1.83 percent to $1.2695 as of 10:00 a.m. in Sydney, after the release of the initial UK exit poll inconclusive U.K. election result. A huge volatility is caused by political uncertainty of narrowing polls, which the ruling Conservative Party was projected to win most seats, though fall short of an overall majority, according to an exit poll.
The election results cap today’s major events that catch investors most attention all week, raising the possibilities of political turmoil in the next round less than a year after Britain voted to leave the European Union. Initial U.K. election exit poll statistics show that Conservative Party won 314 seats, Labour Party 266 seats, SNP 34 seats and Liberal Democrats 14 seats. With polls narrowing, Primer Minister Therasa May didn’t have a guarantee to win the election.
May announced to advance the election to call for growing her parliamentary majority and secure her Conservative vision for Brexit. However a serious of political missteps dragged her and two terror attacks changed the tone and direction of the campaign. Her major rival Jeremy Corbyn, an old-school socialist and leader of the Labour party, has been narrowing the gap of polls and is focusing on inequality, free education and billions more in public spending.
The rekindled political uncertainty in U.K. even in Europe caused by a hung parliament poses unexpected trouble to May in securing the majority in U.K. Parliament. “A hung parliament is the worst outcome from a markets perspective as it creates another layer of uncertainty ahead of the Brexit negotiations and chips away at what is already a short timeline to secure a deal for Britain,” said Craig Erlam, London-based senior market analyst at OANDA Corp.
Technically the GBP/USD is currently standing at a weak position, with sharply descending Relative Strength Index (RSI 14) setting below the median. The sudden plummet is hitting back to 60-day moving average (MA60) to find support, after its consolidation in a developing ascending price channel.
In the event that the GBP/USD fails to break lower, traders may look for a long position on sterling’s rebound. Alternatively if prices edge lower and break to the MA60, the GBP/USD may continue to run in a bearish market. However, the direction for the GBP/USD will be mainly determined by the high important event of the coming up election.
Chart 1: GBP/USD Daily
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