By Lea Pachta

After months of speculation, it appears that the pollsters have called it and the UK looks set for a hung parliament.

As the results have trickled in the Conservatives, as was expected, have got the majority vote and leading number of seats. However, they are certainly going to fall short of the 326 needed to form a majority and the markets have reacted accordingly. Sterling has slipped sharply across the board this morning, down over a percent against nearly all the majors.

Duncan Higgins, senior analyst at Caxton FX comments, “The political wrangling will begin in earnest next week, and credible signs of a working government could still be days, or even weeks away. In that time it is unlikely that we will see much reprieve for sterling. The fact that the markets have been pricing in a hung parliament scenario for some time now has almost certainly prevented the pound from sliding further against the euro.”

“The uncertainty surrounding the next government has simply compounded pressure on sterling, and against the dollar it is continuing to drop. With the ongoing crisis in the eurozone and its longer-term ramifications also in focus, we are not too optimistic about sterling’s short term prospects,” continues Higgins.

Sterling is currently trading just above 1.15 against the euro and it could begin to bounce back in the latter parts of next week should the coalition talks prove fruitful. Against the US currency, the pound is now nearing $1.46 and there could be further mileage in this drop should the US release positive job numbers today.

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