Sterling plummeted against all its major competitors on news of a hung parliament being formed after yesterday’s parliamentary elections. British voters denied Theresa May the strong mandate that she asked when she had called for a snap election. The Conservatives won 318 seats in the Parliament, 8 less than the 326 needed to have the majority. Labour won 261 seats, marking a success for Jeremy Corbyn. The Scottish National Party (SNP) crashed losing 19 seats. Theresa May will visit Buckingham Palace later today, to ask the Queen’s permission to form a new government.

It has just been confirmed that Theresa May will be forming a coalition with Northern Ireland’s Democratic Unionist Party (DUP). The DUP won 10 seats in the Parliament, gaining an additional of 2 seats from the last elections. The DUP is keen to avoid a hard border with Ireland and its leader, Arlene Foster, has spoken repeatedly against a hard Brexit.

Pound Sterling – UK Markets

Today, the British Pound plunged against the US Dollar and the Euro in one of the worst days of the last year. The British currency lost 1.8% in value against the US Dollar, trading at $1.27. The Pound-Dollar exchange rate was at a 2-month low. Sterling also slumped against the Euro, recording a 5-month low, with the exchange rate set at €1.13. At the opening of London’s stock market, UK banks and housebuilding firms were among the biggest fallers indicating that the City is worrying about the economy’s course after the elections.

Investors and market experts predict that the British currency will be very volatile as they find the reality of a hung Parliament very unsettling. They point out that markets hoped for Theresa May getting a strong mandate to negotiate with the EU. With these hopes shattered and the Conservatives shocked by the outcome, the Pound will be vulnerable to any updates regarding the form of a coalition government and the upcoming Brexit negotiations.

Citi investment bank published a note in which it was saying that it might be better if Theresa May resigned, but May denied that possibility. JP Morgan analysts suggested that “the likelihood of the UK needing to request a delay in the Brexit process has risen substantially.” The British Chamber of Commerce (BCC) warned that it’s imperative for a workable administration to be formed as soon as possible. Adam Marshall, the BCC’s director general, said that businesses need to be confident that there is a functioning government in the country and added that he can’t see how Brexit negotiations can start until there are clear objectives and a strong negotiating team has been formed.

US Dollar – US Markets

The US Dollar increased slightly in value against the Euro, trading at €0.89. The US currency wasn’t affected by James Comey’s testimony before the Senate’s Intelligence Committee, which market experts judged as “not life- threatening” for president Trump’s administration.

The former FBI director Comey, who was fired by Donald Trump in May, told the senators that he believed Trump had directed him to drop an FBI investigation into the former national security adviser, Michael Flynn, and his links with Russian officials. Comey refused to say if he thought that the president tried to obstruct justice. Being diplomatic, he said that the special counsel appointed to investigate the Russia allegations, Robert Mueller, should sort this thing out.

Comey didn’t disclose any evidence about any links between Trump and his staff members and Russian officials. Comey also told the committee that he believes that Trump fired him because “something in the way I was conducting the Russia investigation was in some way putting pressure on him and irritating him.”

Euro – European Markets

The Euro lost 0.2% in value against the US Dollar, trading at $1.11. The single market currency jumped against Sterling on news of political uncertainty caused in the UK because of the elections result. The exchange rate between the two currencies was set at £0.88.

Guy Verhofstadt, the European Parliament’s Brexit representative, said that the upcoming complex negotiations became even more complicated after the UK elections. The EU had asked from Theresa May to share her plans on Brexit negotiations earlier than the European Council meeting on 22 June.

Mario Draghi, the European Central Bank’s (ECB) president, said in a press conference that the risks to the Eurozone’s growth outlook are broadly balanced. The Italian banker also said that the recent inflation volatility in the Eurozone is due to energy and services’ prices. The ECB announced that its benchmark interest rate will remain unchanged and didn’t refer to any future rate cut.

Other Currencies – Highlights

The British Pound dropped against the Australian Dollar trading at 1.68 AUD for the first time since mid-April. News of the UK election result made the British currency suffer against the Aussie. The Australian Bureau of Statistics (ABS) published the lending finance figures for April. Data showed a slight increase in commercial lending, while house and lease finance slightly declined. The biggest drop was in personal finance with -2.7% compared to March’s reading. In other news, Australian officials will start work in November on a free-trade agreement (FTA) with the European Union. As it was revealed in the inaugural EU-Australian leadership forum in Sydney, the focus of the FTA will be on services and investments.

The New Zealand Dollar rallied against the British Pound increasing in value by 2.1%. The exchange rate between the Sterling and the Kiwi was set at 1.75 NZD, the lowest level since the end of March. Apart from the outcome of the British parliamentary elections that affected the rate, the Kiwi also strengthened on news from China regarding the inflation data. China’s inflation rose to 1.5% in line with expectations, making the Kiwi jump since the two countries have strong trade relations.