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Sterling stabilises as May prepares minority government Pound stabilises as May prepares minority government
(35 minutes later)
The British pound has stabilised on Asian markets, remaining at its low after last week's shock election results in the UK. The pound stabilised on Monday after suffering its biggest one-day drop in about eight months on Friday in the wake of the shock election result.
The currency traded at $1.2740 early on Monday after Friday's $1.2743 close. Sterling was little-changed against the dollar at $1.2739 and dipped 0.1% against the euro to 1.1367 euros.
Analysts suggest the likelihood of a minority Conservative government might stave off further falls in the currency. On the stock market, the FTSE 100 index opened down 0.4% at 7,497.14.
Prime Minister Theresa May is in talks with the Democratic Unionist Party to support her administration. Analysts said markets were now waiting to see how the government's approach to Brexit would change, if at all, following the election.
Last Thursday's snap general election saw Mrs May lose her majority, throwing the country into political uncertainty. Last Thursday's election saw Prime Minister Theresa May lose her majority, throwing the country into political uncertainty.
She had been hoping to increase her majority ahead of the upcoming Brexit negotiations with the European Union.She had been hoping to increase her majority ahead of the upcoming Brexit negotiations with the European Union.
On Friday, sterling reacted to the vote by sliding 1.7%, its biggest one-day drop in about eight months. Mrs May is now in talks with the Democratic Unionist Party to support her administration.
Confidence drop
The uncertainty caused by the election result has also led business confidence to sink "through the floor", according to one lobby group.The uncertainty caused by the election result has also led business confidence to sink "through the floor", according to one lobby group.
A snap poll of 700 members of the Institute of Directors found a "dramatic drop" in confidence following the hung parliament.A snap poll of 700 members of the Institute of Directors found a "dramatic drop" in confidence following the hung parliament.
The loss of the Conservatives' majority in the House of Commons has led Theresa May to seek the support of MPs from Northern Ireland's Democratic Unionist Party to govern. 'Markets to struggle'
The DUP, which has 10 MPs after the election, has garnered a reputation for its strong and controversial views on a number of social issues. Global currency markets watching how the UK's post-election uncertainty pans out are likely to focus on what it means for the country's exit from the European Union.
'Struggling in a vortex'
Global currency markets watching how the UK's post-election uncertainty pans out will likely focus on what it means for the country's exit from the European Union.
Negotiations with Brussels are due to begin next week, with the outcome expected to have a significant impact on the economies of both the UK and the EU.Negotiations with Brussels are due to begin next week, with the outcome expected to have a significant impact on the economies of both the UK and the EU.
Mrs May has been pushing for a so-called hard Brexit - where the UK leaves the EU single market and the customs union - instead of a softer Brexit, where the UK would maintain the benefits of those associations.Mrs May has been pushing for a so-called hard Brexit - where the UK leaves the EU single market and the customs union - instead of a softer Brexit, where the UK would maintain the benefits of those associations.
"Certainly, prolonged uncertainty would argue for a deeper correction on sterling as May's diminished Brexit mandate scenario plays out," said Stephen Innes, senior trader at Oanda."Certainly, prolonged uncertainty would argue for a deeper correction on sterling as May's diminished Brexit mandate scenario plays out," said Stephen Innes, senior trader at Oanda.
"However, there are cooler heads in play suspecting the only real option left is the more market-friendly outcome where the UK adopts a European Economic Area styled agreement. So, expect markets to struggle in the vortex of near-term possibilities clashing with longer term probabilities." "However, there are cooler heads in play suspecting the only real option left is the more market-friendly outcome where the UK adopts a European Economic Area styled agreement. So, expect markets to struggle in the vortex of near-term possibilities clashing with longer-term probabilities."