Pound struggles to recover in after shock British vote

13/06/2017 01:10 AST

The pound struggled on Monday to bounce back from last week’s sharp losses that came in the wake of a shock British election result that has thrown the country into uncertainty. Sterling took a beating on Friday after Prime Minister Theresa May’s ruling Conservative Party lost their Westminster majority, days before it starts crunch talks with the EU on exiting the bloc.

May called the election three years early in a bid to strengthen her hand in looming Brexit negotiations, but the gamble backfired spectacularly and now she must rely on the support of Northern Ireland’s Democratic Unionist Party.

“With May’s leadership teetering on the brink, the UK steps ever so closer to the calamitous Brexit cliff edge scenario,” Stephen Innes, senior trader at OANDA, said in a note. “Certainly, prolonged uncertainty would argue for a deeper correction on Sterling as May’s diminished Brexit mandate scenario plays out.”

The pound sank to a seven-week low of $1.2636 at one point Friday before recovering slightly. In early Asian trade Monday it was at $1.2750.

On equity markets technology firms tumbled, in line with losses in New York, where the Nasdaq was dragged down by big losses in big-name firms including Apple, Microsoft and Google parent Alphabet.

In Tokyo, Sony lost 1.2 percent and Sharp dived more than three percent, while in Seoul Samsung lost almost two percent. Hong Kong-listed Tencent was 2.2 percent off. On broader markets Tokyo ended 0.5 percent off, while Hong Kong shed 1.2 percent lower and Seoul gave up one percent. Taipei slipped 0.9 percent and Shanghai closed 0.6 percent down.

“There’s a chance US Internet technology stocks that have propelled a global stock rally will now serve as a buzz kill,” Mitsuo Shimizu, deputy general manager at Japan Asia Securities in Tokyo, told Bloomberg News.

Analysts described the movements as a rotation in which investors were taking profits from highly valued sectors and putting the funds in areas that have underperformed, such as financials, energy and retailers.

Dealers are now waiting for the Federal Reserve’s next policy meeting, which ends Wednesday. While the central bank is widely expected to lift interest rates, its post-meeting statement will be pored over for clues about policymakers’ plans for future increases and their view on the world’s top economy.

The euro edged up slightly as it became clear that the party of new French President Emmanuel Macron was heading for a huge majority after Sunday’s first round of voting for the National Assembly.

In early European trade London slipped 0.5 percent, Paris eased 0.4 percent and Frankfurt was off 0.3 percent.

Arab News