ETF: Market worries will primarily be expressed in currencies

“The promise of ‘strong and stable leadership’ has bred more unnecessary political uncertainty and sterling volatility. With a tough Brexit process now likely, Theresa May could lose her job or be forced into a drawn out process to agree a coalition. This, and a lack of political unity in parliament is also likely to weigh on upcoming Brexit negotiations which are due to begin in 2 weeks’ time.

“Market worries will primarily be expressed in currencies, creating even more volatility. A hung parliament could see GBP test 1.24 against the USD, sterling already reacted quite negatively down to 1.27 – now looks to have stabilised at this level for now. Despite futures showing FTSE 100 opening down since yesterday, typically a weak pound is positive for the index due to their near 70% foreign revenue exposure. FTSE 250 is much more vulnerable to a sell off as it is much more domestically focussed, although exporters could rally on weak GBP. Potential rate hike in second half of the year now looks less likely. One saving grace for the UK is the Conservative gains in Scotland highlight an independence referendum now off the table, at least reducing uncertainty in one aspect.”

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