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Sterling sinks as UK heads towards hung parliament

Published 05/07/2010, 02:07 AM
Updated 05/07/2010, 02:12 AM
EUR/GBP
-

* Sterling hits 1-yr low vs dlr of $1.4596, slumps vs euro

* UK vote results point to hung parliament

* Euro climbs 1 pct on day vs sterling

By Naomi Tajitsu

LONDON, May 7 (Reuters) - Sterling sank to a one-year low against the dollar and fell sharply against the euro on Friday after incoming results of a UK general election suggested the country was heading towards a hung parliament.

The pound fell as low as $1.4596, its weakest since late April 2009, as ongoing vote tallies showed the opposition Conservatives were on course to become the largest party in parliament but lacked a clear majority. [ID:nLDE64600H]

Analysts said the stalemate was chilling sentiment for the pound, driving it down as London trade got underway.

"You've seen a significant swing towards the Conservative party but at this stage the polls, particularly the exit polls, are still pointing to a hung parliament," said David Forrester, vice president of global FX strategy at Barclays Capital in Singapore.

"The clearer the result, the better for the currency."

By 0601 GMT, sterling traded 0.5 percent lower on the day at $1.4692.

The euro rose roughly 1 percent on the day to 86.75 pence, before pulling back to 86.45 pence.

With a majority of the votes counted, neither a combination of the ruling Labour party and the Liberal Democrats nor one of the Conservatives and the Ulster Unionists looked to be able make up a majority, which may lead to political stalemate.

"It's as bad as it gets," said a London-based trader.

"Labour/Liberal Democrats cannot get a majority, Tory/Ulster Union cannot get majority, Tory/LibDem won't deal with each other." (Additional reporting by Tokyo Forex Team, Editing by Kim Coghill)

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