June 9, 2017 / 1:42 AM / a year ago

FOREX-UK election upset pummels pound, other currencies stay calm

* British exit polls point to hung parliament in blow for May

* Pound down 1.5 pct after dropping as much as 2 pct vs dollar

* Movements in dollar, euro and yen limited, Comey taken in stride

* Broader market focus shifts to next week’s Fed meeting (Adds details and quotes, updates prices)

By Shinichi Saoshiro

TOKYO, June 9 (Reuters) - The pound fell sharply on Friday after British Prime Minister Theresa May’s Conservative Party appeared set to fall short of an expected majority in a general election.

Sterling was down 1.5 percent at $1.2764 after sliding to as low as $1.2705, down about 2 percent and the weakest since April 18.

An exit poll predicted the Conservatives would win 314 seats in the 650-member parliament and the opposition Labour Party 266, meaning no clear winner and a “hung parliament”.

As of 0125 GMT the BBC reported that May’s party was not expecting an overall majority.

If the exit poll proves correct, the shock result would plunge domestic politics into turmoil and could alter the nature of Brexit talks.

For a graphic on the poll and results as they come in, see tmsnrt.rs/2q7tC48

Movements in other major currencies such as the dollar, euro and yen were limited, also having taken in stride testimony by former FBI director James Comey, which was initially expected to be the other big event of the week.

“Britain’s exit from the European Union will continue regardless of the political turmoil likely to be created by the election results. Other currencies, like dollar/yen, are not reacting much as it is a more domestic affair this time, unlike last year’s Brexit vote,” said Koji Fukaya, president at FPG Securities in Tokyo.

“Focus for the broader currency market will now shift towards the Federal Reserve’s policy meeting next week.”

The dollar was up 0.1 percent at 110.110 yen.

“There were many participants who wanted to take advantage of the volatility resulting from a key event like the British elections, which explains the pound’s initial steep drop,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The swings in the pound have not spilled over into other currencies as the market was well hedged and prepared for a variety of election scenarios.”

The euro extended overnight losses and was 0.2 percent lower at $1.1190.

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 bond-buying programme.

Comey accused President Donald Trump of firing him to try to undermine its investigation into possible collusion by his campaign team with Russia’s alleged efforts to influence the 2016 presidential election.

While this was the most eagerly anticipated U.S. congressional hearing in years and was approached by investors with caution, it did not offer fresh insight for the financial markets. The Nasdaq managed to close at a record high on Thursday.

Trump’s critics say any efforts by the president to hinder an FBI probe could amount to obstruction of justice. Such an offence potentially could lead to Trump being impeached, although his fellow Republicans who control Congress have shown little appetite for such a move.

Buoyed by the pound’s fall, the dollar index against a basket of major currencies was up 0.4 percent at 97.319. (Editing by Kim Coghill)

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