Amid economic reports, a diplomatic crisis in Qatar, an ECB meeting, and ex-FBI director James Comey’s testimony against Trump, this week has been packed with news that rattled investors’ world. However, we would be amiss if we don’t admit that perhaps the most important event this week were the early parliamentary elections in the United Kingdom held on June 8.
Unlike most elections, the drama in the UK was not centered around who will win and who would lose. The Conservatives were expected to win the most seats in parliament in any event. Still, Theresa May’s government had been losing favor with the British people in recent weeks – much to the Prime Minister’s chagrin, as she called these early elections specifically so she could secure her party another term before the UK public is too disappointed in her cabinet.
As it turns out, people were already disappointed. The Tories failed to win the majority of the votes required to form a government; the Labour party did surprisingly well, and a few smaller parties also won seats in Parliament. Nevertheless, the issue is that since no one gained a majority, the United Kingdom got itself a hung government.
In the absence of a clear winner, British parties now have to enter into negotiations with one another in order to form a coalition. If this fails, the Tories or the Labour party might also try to run a government of the minority. Neither of these situations is ideal because both bring a lot of instability along – whether it’s internal among coalition members, or external in the form of a strong opposition in parliament.
So, what does all of this mean for all of us? Essentially, the election results point to further turmoil in the United Kingdom. Parties will be making friends and enemies over the next week, any government that gets formed will likely be facing a short term in a tight spot as they try to negotiate a Brexit deal with the European Union, and we may even see new elections soon. This kind of political uncertainty always entails distrust from investors and lower currency confidence.
The British pound has already become a victim of these elections. The currency dropped to a long-term low of $1.2632 early this morning; the euro also gained on the pound, additionally helped by the ECB announcement that higher growth is expected in Europe. Analysts expect the political chaos in the UK would likely drag the pound further down.
We urge you to keep a close eye on the developments in the United Kingdom in the next few weeks. Times of high volatility often provide an opportunity for increased profit – and considering there is tons of fundamental data in the near future that can affect the markets, volatility is the current sentence for the British pound.
