The prospect of a hung parliament pegged back gains for sterling and UK government bonds today as investors fretted over the outlook for the UK’s public finances.
In volatile trading and with no sign yet of a clear winner, the pound slipped back nearly a cent to $1.48 and €1.17.
June gilts - a form of UK Government bond - also fell more than 0.5 per cent off earlier highs, suggesting fewer investors are expecting a decisive government to start tackling the UK’s massive deficit.
London’s Liffe exchange opened at 1am - more than six hours early - to satisfy huge election night demand from major players such as banks and hedge funds.
David Jones, chief market strategist at IG Index, said: “The markets have swung right back in the last couple of hours.
“We are going to need some pretty big swings now to get a Tory majority.
“It almost seems people are resigned to a hung parliament.”
After a series of earlier results suggested the Tories had secured a big enough swing to secure an overall majority, both sterling and the gilts rallied strongly.
According to analysts, that reflected the sentiment of investors hoping for a decisive Conservative win in order for prompt action over the UK’s record £164 billion deficit.
The notional swing in Houghton and Sunderland South was 8.44 per cent from Labour to the Conservatives - well ahead of the 6.9 per cent needed to control Westminster – and the Tories also snatched Kingswood in Gloucestershire from Labour with a swing of 9.4 per cent.
But some of the party’s target seats did not fall in later counts, including top 10 target Eastleigh where the Lib Dems increased their majority.
Traders have been at their desks through the night as they digest the incoming results from around the country.
They will be looking to hedge their positions should the unexpected happen – as well as potentially dumping Government bonds and the pound if predictions of a hung parliament are realised.
PA