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Sterling sees post-election gains wiped out

Sterling sees post-election gains wiped out

Sterling has seen its post-election gains completely wiped out as it had one of its worst weeks of the year.

The value of the pound has fallen to $1.29 - sinking more than 4 per cent from its immediate post-election high of $1.35 on Friday, December 13.

It has also fallen by more than 3 per cent against the euro since the general election, to €1.16.

One of the steepest falls came on Tuesday, December 17 in response to the government's decision to rule out extending the Brexit transition period beyond the end of 2020 - which raised concerns about a no-deal exit from the EU.

The fall in sterling has been accompanied by a nearly 6 per cent rise in the FTSE 100, which had a muted initial reaction to the Conservative party's victory in this month's election.

The companies in the FTSE 100 index derive about 80 per cent of their revenues from overseas, so suffer if sterling rises and benefit if it falls.

Companies in the FTSE 250 derive about half of their earnings from within the UK, so are more sensitive to the performance of the UK economy.

This index experienced a rally after the election result became known but has since stagnated, falling by 0.3 per cent since Friday, December 13.

Joe Healey, investment research analyst at The Share Centre, said: "The pound has been on a wild ride since the election last week, with it seeing a surge as the exit polls correctly predicted the Conservative’s would be triumphant.

"This optimism quickly subsided as markets digested the inevitable formality that Brexit is not yet over.

"In the event of a ‘hard’ Brexit it’s likely the pound would fall further, potentially passing the lows recorded in August near the $1.2 level. However, a Brexit deal would likely see the pound rise, surpassing the December high and possibly reaching the $1.45 mark.

"It’s clear from these possibilities there is still a vast amount of uncertainty surrounding Sterling, which is why its trading has been so volatile in recent weeks."

damian.fantato@ft.com