Traders are expecting a volatile day for the pound and UK shares after the election resulted in a hung parliament.
Overnight the pound fell sharply, at one stage hitting $1.27 against the dollar, before recovering slightly.
Traders had been expecting a clear victory for Theresa May’s Conservatives, but are now concerned about political uncertainty.
The London stock market begins trading at 08:00 GMT.
A weaker pound has supported the UK stock market over the last few months, particularly shares in companies which have a lot of business overseas.
But analysts are concerned about the heightened political uncertainty.
“The unexpected outcome increases the threat of further volatility for sterling and UK assets,” said Mark Haefele, global chief investment officer at UBS Wealth Management.
“The result is likely to call the position of the Prime Minister into question, the government is likely to be relatively weak, and the result further complicates the upcoming Brexit negotiations,” he said.
The BBC is projecting that the Conservatives will be the largest party with 318 seats – eight short of a majority.
While the pound’s move is significant, it is far from dramatic.
Some analysts say that might reflect the diminishing prospect of a “hard” Brexit.
Although a hung parliament would mean uncertainty, Neil Wilson at ETX Capital said that a “softer version of Brexit” was now more likely.
“Mrs May’s mandate to push through her clean, hard Brexit has evaporated. Voters didn’t want to hand her the blank cheque for Brexit. It may leave negotiations in limbo but would also tend to suggest that the downside for sterling is limited,” he said.
Former Business Secretary Sir Vince Cable said “the whole Brexit approach will have to be rethought”.
BBC economics editor Kamal Ahmed said that suggested the UK’s membership of both the single market and customs union would now be “back on the table”.
Sir Vince is returning to the Commons after regaining the seat of Twickenham in southwest London for the Liberal Democrats.
Sterling fell after an exit poll for the BBC, ITV and Sky released as the polls closed at 22:00 cast doubt on an overall Conservative majority, raising concerns about increased uncertainty and a possible delay to Brexit negotiations.
Sterling has been trading in a range between $1.28 and $1.30 in recent weeks.
Against the euro the pound is down 1% at 1.142 euros.
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