General Election 2010: City nervous as early results suggest hung parliament
In volatile trading and with no sign yet of a clear winner, the pound slipped back nearly a cent to $1.48 and 1.17.
June gilts – a form of UK government bond – also fell more than 0.5 per cent off earlier highs, suggesting fewer that investors are expecting a decisive government to start tackling the UK's massive deficit.
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David Jones, chief market strategist at IG Index, said: "The markets have swung right back in the last couple of hours."
After a series of results suggested the Tories had secured a big enough swing to secure an overall majority, both sterling and the gilts rallied strongly.
According to analysts, that reflected the sentiment of investors hoping for a decisive Conservative win in order for prompt action over the UK's record 164 billion deficit.