The pound wallowed around two-month lows Tuesday, unable to bounce back from last week’s shock election that saw Britain’s ruling Conservatives lose their majority, throwing the country into uncertainty, days before key Brexit talks.
While Prime Minister Theresa May looked to counter anger within her party by apologizing and telling MPs “I got us into this mess, and I’m going to get us out”, there are doubts about her future in Downing Street.
May had called the vote in a bid to strengthen her majority, and her bargaining power, before going into the EU exit talks set for June 19. Now she must rely on the support of Northern Ireland’s Democratic Unionist Party.
Greg McKenna, chief market strategist at AxiTrader, said: “The political uncertainty is unhelpful given Brexit talks are about to begin in the next week.”
He added that “sterling came under renewed pressure as a result” of the newly formed government’s refusal to soften its approach to the discussions. “Why the government wouldn’t use the election for a reset I just don’t know.”
In early Asian trade the pound slipped to $1.2650.
The currency’s “near-term direction will continue to be driven by the post-election fallout, but the prospects look increasingly gloomy as the possibility of another Tory leadership vacuum enters the picture at precisely the wrong time for the UK,” said Stephen Innes, senior trader at OANDA.
Fed, Sessions in view
On equity markets, technology firms struggled to recover from the previous day’s sell-off that was sparked by a rout in the sector on Wall Street Friday. Sony and Sharp were well down in Tokyo while Tencent was marginally up in Hong Kong after Monday’s tumble. Samsung was also lower in Seoul.
The losses came after the Nasdaq suffered another slump, extending Friday’s losses, as Apple and Amazon took a beating, with analysts wondering whether the selling is down to profit-taking or the start of a broad retreat after all US indices hit records last week.
Broader markets fared slightly better after Monday’s steep losses. Tokyo ended the morning session at a loss while Shanghai was down 0.1 percent. Wellington and Manila also eased slightly.
But Hong Kong added 0.1 percent, Sydney gained 0.6 percent and Seoul gained 0.5 percent.
Traders are now awaiting the end of the Federal Reserve’s latest policy meeting. While another interest rate hike is widely expected, the bank’s post-meeting statement will be scanned for some forward guidance and clues about future movements.
Also, US Attorney General Jeff Sessions is due to testify Tuesday to the Senate Intelligence Committee as it probes Russian meddling in last year’s election and Moscow’s links to under-fire President Donald Trump.
Attention has focused on Sessions as reports swirl that he may have had more meetings with Russian officials during the campaign last year than the two he has informed authorities of.
Key figures around 0230 GMT
Tokyo – Nikkei 225: DOWN 0.1 percent at 19,885.72 (break)
Hong Kong – Hang Seng: UP 0.1 percent at 25,764.00
Shanghai – Composite: DOWN 0.1 percent at 3,183.22
Euro/dollar: DOWN at $1.1193 from $1.1203 at 2040 GMT
Pound/dollar: DOWN at $1.2650 from $1.2657
Dollar/yen: UP at 110.06 yen from 109.93 yen
Oil – West Texas Intermediate: UP 13 cents at $46.21 per barrel
Oil – Brent North Sea: UP 14 cents at $48.43
New York – Dow: DOWN 0.2 percent at 21,235.67 (close)
London – FTSE 100: DOWN 0.2 percent at 7,511.87 (close)