UK's uncertain future slams pound
The pound slumped to a 13-month dollar low yesterday on fears that Britain's election outcome would hamper the nation's ability to slash sky-high public debt, analysts said.
London's benchmark FTSE 100 index also sank but experts said this was mainly owing to fears that the Greek debt crisis risked spreading.
Britain's election has sparked the country's first official hung parliament since 1974, with the main opposition Conservatives garnering the most seats but with no chance of winning an overall majority, results showed.
"We are in no-man's land at the moment and the markets do not like uncertainty -- this is leading to a sell-off in the pound," said Currencies Direct dealer Phil McHugh.
The pound tumbled to 1.4476 dollars -- its lowest level since April 2009 -- as the Conservatives failed to clinch a decisive victory against the ruling Labour party. And the British unit slid to a one-month low of 1.1353 euros.
"The pound has been crippled... by the spectre of political uncertainty," said Mark Bolsom, head of the UK trading desk at Travelex.
"A hung parliament really is the worst possible result for the pound and foreign exchange markets are very volatile.
"Investors are concerned that a hung parliament will paralyse the formation of a credible deficit reduction plan," Bolsom said, adding that many were seeking traditional safe-havens like the dollar.
Sterling later pulled back to stand at 1.4709 dollars at about 1600 GMT in choppy trading.
The European single currency meanwhile had plunged to 1.2529 dollars on Thursday, striking a near 14-month low on heightened concerns about Greece.
On Friday, the FTSE 100 was down four percent nearing the close, slammed by sharp falls elsewhere amid mushrooming fears that the Greek debt crisis would spread across the eurozone. It later pulled back to stand two-percent lower.
And traders worried that the uncertain election outcome would affect the new British government's ability to slash the deficit and preserve the nation's top-level credit ratings.
Conservative leader David Cameron on Friday said he wanted to forge a "big, open and comprehensive" power-sharing deal with the third-placed Liberal Democrats, a day after Britain's indecisive general election.
"I want us to work together in tackling our country's big and urgent problems, the debt crisis, our deep social problems, and our broken political system," he said.
The new British government's priority will be to cut the deficit, which stands at 163.4 billion pounds, or 11.6 percent of gross domestic product -- the highest level since World War II.
International ratings agencies Moody's and Standard & Poor's said that the hung parliament verdict would not affect their top-level assessments.
Moody's said the unclear outcome "does not directly threaten" Britain's coveted AAA rating. S&P said that the nation's AAA long-term sovereign rating with a negative outlook was unchanged.
"The complexion of the new government is not, in itself, a factor for us," said S&P.
"Instead, our focus is on whether the government's fiscal consolidation plan to be unveiled in due course is likely or not to put the UK government debt burden on a downward trajectory over the medium term."
The Conservatives won most seats but they failed to land a knock out blow against Prime Minister Gordon Brown.
With less than a handful of the 650 seats left to be counted, the Conservatives had 306 lawmakers compared to 258 for Labour, meaning it was impossible for the Tories to win the 326 seats they need to govern alone in the House of Commons.
The Liberal Democrats had just 57 -- a disaster for the third party after what had seemed to be a strong campaign.
Britain only just emerged from a record-length recession at the end of last year, ending a deep downturn that was rooted in the global financial crisis and lasted for six successive quarters.
Markets are currently on red alert over soaring levels of public debt after crisis-hit Greece was forced to go cap-in-hand to the eurozone and the IMF for a 110-billion-euro rescue package.
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