The result has added a new layer of uncertainty to Brexit negotiations and saw sterling spiral lower overnight
The UK currency has begun to climb back after taking a hit in the fallout from the General Election.
The Conservatives failed to secure a majority in the contentious vote, leaving the nation grappling with the result of a hung parliament.
Sterling is buying €1.14 after dropping sharply overnight to €1.13. It still has a climb ahead to reach yesterday’s high of €1.16 but the currency is showing some signs of recovery.
The result of a hung parliament has rattled the market due to the significant uncertainty which now lies in the days to come.
Investors were forecasting a majority government, which prompted expectations of a strengthened sterling once the vote was counted.
But instead the worst exchange rate outcome has occurred, with a hung parliament casting doubt over the future of Britain’s political sphere.
Theresa May’s hopes of securing a bigger Commons majority have been quashed by a resurgent Labour Party while huge losses for the SNP in Scotland have all but ended Nicola Sturgeon’s hopes of a second independence referendum.
Laura Parsons, currency analyst at TorFX, said: “The UK is heading for a hung parliament, with the Conservatives failing to secure the massive majority predicted back in April.
“The result has added a new layer of uncertainty to Brexit negotiations and saw sterling spiral lower overnight, with the currency falling by two per cent.
“GBP/EUR hit a low of €1.131, having already fallen over the last couple of weeks as a rocky campaign for Prime Minister Theresa May left a Conservative victory in doubt.”
Despite sliding overnight, experts said the fall could have been much more dramatic.
Kathleen Brooks, research director at City Index Direct, said: “While the hung parliament result was a shock, the market reaction has also been somewhat puzzling.
“The pound has remained relatively stable, suggesting that the prospect of a hung parliament and a second vote is not triggering market panic.”
Pound euro exchange rate – sterling has dived after the result of a hung parliament
How will the election results affect exchange rates?
Jon Ostler, UK CEO, finder.com added: “The uncertainty of the hung parliament has given Sterling yet another hit, with a 2% drop overnight. For many; the worst result for confidence in currency.
“Signs of certainty and stability as the nature of the next government becomes apparent will help currency.
“According to finder research, Brexit has already added 11.9% to the price of a holiday and if you’re booking travel or buying currency, hold onto your money and think about going all-inclusive. The prospects of a hard Brexit may be less, but the only certainty is uncertainty.”
Sterling has been somewhat supported by a weakened euro, which also dropped overnight.
Yesterday’s comments from European Central Bank (ECB) president Mario Draghi on monetary policy caused the single currency to fall from six month highs.
Mr Draghi revealed he was ready to increase the EU’s asset-buying programme if need be.
The ECB left interest rates unchanged and raised projections of growth only slightly.
Sterling’s performance remains highly volatile to the political agenda set in the days ahead.
James Knightley, senior economist at ING, said: “Given Labour’s left wing tax and spend manifesto and desire to nationalise the utility, rail and mail industries, markets are not going to react well if this is the outcome.
“The fear of higher deficits and national debt is leading to a spike in government bond yields.
“Meanwhile the greater chance of a Scottish Independence referendum in the next couple of years [Labour may have to offer this to get the support of the SNP] will intensify political uncertainty and it is already weighing heavily on the pound.”
Pound euro exchange rate – sterling has slipped overnight as election results are revealed
Should I buy my euros today?
Some experts have warned the pound to euro exchange rate could fall below €1.10 in the fallout from a hung parliament.
It’s likely the pound will pick up eventually but only when there is a more certain outcome for the British government, which could take some time.
Ms Parsons said: “The pound will remain under pressure until a working government is formed, so further losses are likely until the dust settles.”
As Martin Lewis warns, it’s impossible to definitively predict the direction the currency will track in the coming days.
But as the pound slides, there may be money to gain by buying some of your foreign currency now.
The money saving expert has assured Britons today that despite the election outcome, nothing much has officially changed, including regulation, laws and even personnel at the top.
He said: ““Uncertainty is never good – the markets don’t like it and the markets are generally right wing so they won’t like this.
“We’re likely to see – in the short term at least – a drop in the pound.”
Pound euro exchange rate – Theresa May has failed to secure a majority government
In terms of buying currency, Martin has advised travellers to not let the external political factors influence your decisions too much.
He said: “The same rules apply as always. I’m a big fan of getting yourself a specialist overseas credit card, like Halifax Clarity or the Creation Everyday Card, making sure of course that you repay it IN FULL. Or you could get a top prepaid card like Resolute or Monzo.
“If you want to buy currency there are ways to do it, such as both Travelex and Moneycorp allow you to preorder currency at no charge for pickup in 14 days time. If you do that now and the rate moves against you then you’ve locked into today’s rate and if the rate moves in your favour you can always cancel it at no cost and get a new deal on a new day.”
Travelex has warned customers about the consequences of a falling pound.
A spokesperson said: “The General Election resulting in a hung parliament has caused uncertainty in the market and the pound has lost value against other currencies. Compared to 10am yesterday, Brits changing £500 at 9.15am today will get €11.12 or $15.50 less per £500.
“In terms of whether it’s a good time to buy, that’s anyone’s guess. The pound has been volatile during the campaign period, and we expect this to continue as a new government is formed and the impact on Brexit negotiations becomes clearer.
“To lock in the current rate, you can order cash or a prepaid card online at Travelex.co.uk and cancel if necessary with no charge up to 24hrs before the order is due to be collected.
“We advise customers to keep a close eye on rates and set up email alerts to help them get the best value on travel money using our Travel Rate Tracker.”
Martin Lewis has also previously advised buying half now and half later to hedge your bets in a volatile market like the one the UK faces now.
Earlier this year the money saving expert advised: “If you’re really nervous, ask yourself, “Would I be content with today’s rate for my holiday money?” If so and your real fear is the rate worsens so your holiday would be unaffordable, play safe and buy more than half now.
“Yet do that for safety’s sake, and if the pound strengthens, and you’d have been better off waiting, don’t let hindsight bitterness ruin your holiday.”
According to currency experts at FairFX, the pound is now 13 per cent lower against the euro than at last June’s Brexit referendum.
But there are still decent rates to be found if you’re willing to plan ahead.
Ian Strafford-Taylor, CEO of FairFX, said: “Uncertainty driven by Brexit and, more recently, the run up to the general election, resulted in volatility in the strength of the pound which has experienced a roller coaster 12 months.
“As the exit polls indicated a hung parliament and the results bore witness to this today, the pound has been hit as change spells uncertainty. Unfortunately, uncertainty is likely to characterise the coming days, weeks and months as a government is formed and Brexit negotiations start in earnest which could lead to further currency volatility.
“Consumers looking to buy currency can still find good value by planning ahead. If you’re not set on where you travel, look at destination where the pound goes furthest over the long term which will help you get more bang for your buck. When you’ve booked your holiday, keeping an eye on rates is a smart move. S
“igning up to a free tracker will do this for you as it will alert you when rates move in your favour and you can buy when the pound is at its strongest. We have customers who routinely buy their travel money even if they haven’t booked their holiday.
“The key is to never leave travel money until the last minute as you risk being at the mercy of the rate on the day and are more likely to miss out on the best deals.”