The pound has plunged in value as financial markets digest the implications of a General Election that has left the Conservatives short of a parliamentary majority.

Earlier on election day, sterling had hit a two-week high of $1.2978 after polls predicted a comfortable victory for the Prime Minister's party.

But confirmation the Tories would be the largest party, albeit with fewer MPs, saw the currency dive below $1.27 - its lowest point since the election was called in April.

The pound was also more than 2% down versus the euro at one stage but it recovered some of those losses against both currencies by late morning, when it was clear Theresa May planned to form a new, minority government.

Image: The pound fell sharply when an exit poll predicted a hung parliament

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It was trading at $1.2736 versus the greenback by late Friday afternoon.

The pressure on the pound was reflected on stock markets with the FTSE 100 gaining 1% to close at 7527.

Since the Brexit vote, weaker sterling has boosted demand for shares in firms which earn the bulk of their revenues in dollars and euros.

The biggest winner was international packaging firm Smurfit Kappa. The constituent companies to suffer the most included domestic housebuilders Taylor Wimpey and Barratt Developments.

The currency market's reaction signalled the extent of worries about political division ahead, with the potential to hit Brexit talks and damage Mrs May's negotiating hand.

Jasper Lawler, senior market analyst at London Capital Group, said: "Theresa May hasn't achieved her goal of a bigger mandate for Brexit and that creates uncertainty."

However, the hung parliament result did not spark the sell-off some market commentators had expected.

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The prospect of a possible Tory deal with the Democratic Unionist Party (DUP) to give the PM a slim working majority loomed large.

While Kathleen Brooks, research director at City Index, said: "Perhaps the market is looking at this result as a vote for a softer Brexit, which could boost the pound in the long run."

Political deadlock in London could derail Brexit negotiations with the other 27 EU countries before they even get started in earnest - due to begin on 19 June.

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Mrs May called the election asking the public to back her plan for a so-called hard Brexit that prioritised control over immigration, with Britain leaving the single market and customs union.

Her failure to win an outright majority left her position as Conservative leader in question - raising the prospect of another election later in the year should her minority government fail.

A Jeremy Corbyn-led government would have likely rattled financial markets further after the veteran socialist's manifesto pledged a corporation tax hike and income tax rises for the UK's richest 5%.

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Business groups were quick to demand political stability as soon as possible.

Carolyn Fairbairn, the CBI's director general, said: "With only ten days before Brexit talks begin, the UK needs to be fast out of the blocks.

"Agreeing transition arrangements and guaranteeing EU citizens' rights should be early priorities to get the talks off to a good start and show to the world that trade and people come first.

"Firms will support the UK develop our inclusive, innovative and open economy. More than ever, the new Government must work together with business to make the most of the opportunities ahead.

"Firms can provide the evidence, ideas and solutions from the shop, office and factory floor to secure our future prosperity."

The Federation of Small Businesses suggested the start of Brexit talks be suspended.

Its national chairman, Mike Cherry, said: "Negotiations should be led by a government and a Prime Minister that will be in place for the duration, and so we call for a delay to the scheduled start of negotiations."