The pound has fallen sharply after the election exit poll, which cast doubt over whether the Conservatives will win an overall majority.
The poll forecast may not be reflected in the final result, but traders had been expecting a clear victory for Theresa May’s party.
The pound initially fell by more than two cents to $1.2717.
It has since recovered ground and is at $1.2809, after the first two constituencies announced results.
Labour strongholds Newcastle Central and Houghton and Sunderland South were both held by Labour, with the Conservatives in second place. But the results “suggest Conservatives may have done better than the exit poll suggests” tweeted BBC economics editor, Kamal Ahmed.
Sterling has been trading in a range between $1.28 and $1.30 in recent weeks.
The exit poll indicated that the Conservatives will be the largest party but will lose 17 seats with a projection of 314 seats.
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“The market will be praying that this exit poll has got it wrong,” said Lee Hardman, currency analyst at MUFG.
Investors have been buying up the pound over the last few days, he said.
“There is plenty of scope for a sharp downside move if the exit poll proves true.”
Neil Wilson, senior market analyst at ETX Capital said the exit poll was a shock for the financial markets. “It’s fair to say the City was pretty confident of a Conservative majority.”
Dean Turner, economist with UBS Wealth Management, said: “It is early days, and the result can change, but it looks as though Theresa May’s grip over the Conservative Party has weakened, which does not bode well for the forthcoming Brexit negotiations,” added.
Source: BBC News