* British PM May falls short of parliamentary majority
* Pound down 1.6 pct after dropping as much as 2 pct vs
* Movements in dollar, euro and yen limited, Comey taken in
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, June 9 Britain's pound plunged to its
weakest level in seven weeks on Friday after Prime Minister
Theresa May's Conservative Party lost its parliamentary majority
in national elections, potentially disrupting Brexit
Just 10 days before the start of negotiations on Britain's
divorce from the European Union, no single party won a clear
claim to power in Thursday's snap vote.
The result - flagged by some analysts as the worst possible
election outcome due to uncertainty - saw the pound fall as much
as 2.5 percent to $1.2636 in early European trade. That was its
lowest level since May called the election on April 18.
It had recovered a notch by midday in London to trade 1.6
percent lower at $1.2745.
Despite facing calls to quit after her election gamble to
win a stronger mandate backfired, May will proceed on Friday to
ask Queen Elizabeth for permission to form a government.
For a graphic on the poll, see tmsnrt.rs/2q7tC48
"We still think that sterling will find support despite the
near-term weakness," said Martin Arnold, FX strategist at ETF
Securities in London.
"Although (the election result) raises...the potential for
policy paralysis like we're seeing in the States, it's probably
not at this stage too damaging to Brexit negotiations - those
will likely continue along the same lines as expected."
Reactions in other major currencies such as the dollar, euro
and yen were limited. They had already largely shrugged off
Thursday's testimony by former FBI director James Comey, which
had been seen as the week's other big event.
"(The election result) is more of a UK-specific negative
development than a broader, global, macro one," said MUFG
currency strategist Lee Hardman in London.
"The harder Brexit scenario could have some negative
implications for Europe as well as some impact globally but at
the end of the day it's still more of a regional story."
The dollar was up 0.4 percent at 110.385 yen and
against a basket of major currencies was up half a percent at
The dollar index had fallen to a seven-month low of 96.511
midweek when caution ahead of Comey's testimony and the British
election drove U.S. yields to their lowest levels since
November. But yields have since bounced from the lows as risk
The U.S. Federal Reserve is widely expected to hike interest
rates after it ends a two-day meeting on Wednesday, and
investors' focus is on whether it would leave the door open for
further monetary tightening in the months to come.
The euro extended overnight losses and was 0.3 percent lower
at $1.1179, off a seven-month high of $1.1285 touched a
week ago on improved growth prospects in Europe and a broadly
But the common currency was capped after the European
Central Bank on Thursday cut its forecasts for inflation and
said policymakers had not discussed scaling back its massive
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Shinichi Saoshiro in TOKYO; Editing by
Andrew Heavens and Toby Davis)