Conservative leader David Cameron took over as British prime minister on Tuesday and said he wanted to form a full coalition with the smaller Liberal Democrat party.
Following are comments from analysts:
TODD ELMER, CURRENCY STRATEGIST, CITIGROUP, NEW YORK:
"Sterling has been sensitive with all the back and forth of these particulars. Now, with more clarity in regards to the future government, there's scope for positive surprises. If the government implements fiscal adjustments quickly, for example, that would be very supportive to sterling."
"Euro/sterling could "break through" recent lows."
"We see value in keeping a short euro/sterling position."
"The negative impact of political uncertainty may already be discounted for GBP. While we doubt that any government would be able to quickly put the UK back on a more sustainable fiscal path, this may raise the risk for 'positive' political surprises and could leave the pound well positioned to gain."
DAVID LEA, WESTERN EUROPE ANALYST, CONTROL RISKS
"Interesting they have gone for a full coalition, and very market positive. I still don't think it will last the full four years.
"The differences between the parties are just too great. Even if they do get a four year fixed term into law it will probably be like the Scottish version where an election can be called by a full vote in parliament. So we could still see another election before long, probably 2012.
"In the short term, we will have to see the lineup and then more seriously the policies. But overall this looks much more stable than if Cameron only had a small majority.
"It should also reduce the risk of serious unrest. He tends to only get that when protesters think they can achieve something in this government should have a large enough majority to avoid that."
ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS SECURITIES, STAMFORD, CONNECTICUT
"The market is giving them the benefit of the doubt, and euro-sterling was trading quite heavy anyway given all the problems the euro is facing. I think if you want to go long sterling on this, you'd be advised to do so against the euro rather than the dollar. That said, people are not going to put all their chips on the table because we have to see what they come up with in terms of a fiscal plan. But uncertainty has been removed."
JUSTIN FISHER, POLITICAL SCIENCE PROFESSOR, BRUNEL UNIVERSITY
"We don't know quite where the Lib Dems stand. One assumes they will go into a coalition."
"The interesting thing is the idea about fixed-term (parliaments) which suggests the Lib Dem-Conservative coalition may last longer than people would suspect and indeed is quite a surprising move considering the uncharted waters we are in and whether or not a coalition, given that we are not used to coalitions, can last that long."
(On whether there will be tensions within the coalition on issues such as Europe) "Almost certainly there will … How strongly Europe will feature on the agenda will be a moot point. There are other issues which may bring tensions to the fore such as Trident and indeed the public sector cuts that the Conservatives are commmitted to."
(On whether the new government will be able to significantly reduce the budget deficit) "It will reduce it. Whether or not it will cut it to the level that they hoped, I think is debatable, but that would have applied whether it was a majority or a coalition (government)."
(On the possibility of no coalition agreement being reached and Cameron leading a minority government) "That's a distinct possibility and always has been ever since he crossed the psychological 300 (seats in parliament) mark. If there is a minority, even if it's a simple agreement whereby the Lib Dems don't vote down the Queen's speech or the first budget, then I think we are heading for another election within 12 months. If it's a more formal arrangement it's likely to be longer."
"All of this represents a risk for the Liberal Democrats. The Lib Dems in effect become a much less attractive option for disillusioned Labour suporters."
MARK WICKHAM-JONES, BRISTOL UNIVERSITY
"I can't believe that there won't be some major surprises, because he's (Cameron) going to want to send signals to the Liberal Democrats that he's serious about it being a coalition, so there's going to have to be some meaningful jobs for them."
"I think it would be quite likely (George) Osborne would be shifted at this point because he's perceived as a lightweigt in the city … The markets are more concerned with Greece than this. They're going to be pleased that this is resolved, they're going to go up slightly, sterling isn't going to go up hugely because people are still going to be nervous about sterling.
"Markets might still be nervous, because even though the uncertainty is resolved, coalition governments have more mouths, and markets don't like feeding people."
ANDREW RUSSELL, POLITICS LECTURER, MANCHESTER UNIVERSITY
"From what we're led to believe it sounds pretty remarkable in the sense of it being a full coalition.
"Cameron's party will be largely relieved that they are in power. I think the rank and file who maybe haven't always bought into the Cameron vision of the future of Conservatism may not be wholly satisfied.
"The biggest problem for the coalition is how it's going to approach issues of Europe. There's an oppositionalist tradition in the Lib Dems that will feel uncomfortable about this."
TIM BALE, SENIOR POLITICS LECTURER, SUSSEX UNIVERSITY
"Cameron gave the kind of emollient speech you hear going into No 10 (Downing Street). He did stress what an awful lot of work there is to do on the deficit. It suggests that quite a lot of the Conservative manifesto will be there, they will have some concessions to the Liberal Democrats but it suggest that it's not as watered down as some have said." WOLFANGO PICCOLI, ANALYST, EURASIA GROUP
"From a market point of view, it is the best result we were going to get from this hung parliament. Although there could still be the final twist in the tail if there is a problem with the Lib Dem vote tonight."
"It is reassuring if it is a proper coalition, particularly if it is right that they have gone for a fixed term of four years. As to whether it will last that long, it is impossible to say. I would have thought you would get a year's honeymoon period at least."
"We still need many more details. The next thing will be to see what was agreed and what the Cabinet looks like. Markets would like to see a Conservative in the Treasury but it would be good to have (Liberal Democrat) Vince Cable there as well."
WYN GRANT, POLITICS PROFESSOR, WARWICK UNIVERSITY
"I think the last couple of days have been an incredible couple of days. It's been a roller-coaster. I can't remember anything like this in British politics since World War Two. This is new, uncharted territory for British politics."
"It's going to be a completely new experience, a learning curve for both political parties and for the civil service."
"I understand this is going to be a fixed-term parliament. That will provide an additional element of stability. I'm sure there will be tensions between the Conservatives and Liberals at different times, particularly over the question of Europe where they do have different stances and where problems could arise as a result of actions taken by the European Union but I think the personal relationship between (Conservative leader David) Cameron and (Lib Dem leader Nick) Clegg is a good one."
(Asked if markets would be persuaded the new government could tackle Britain's budget deficit)
"I think initially they will be. A lot will then depend on what the government actually does. What the government will seek to do is set out a credible medium-term plan for tackling the deficit. I understand the Lib Dems are prepare to contemplate the level of cuts envisaged by the Conservatives so as not to impose the so-called jobs tax."
IVOR GABER, PROFESSOR OF POLITICAL JOURNALISM, CITY UNIVERSITY
"The devil is in the details. What we need to look at is what arrangements they've come to, particulary about electoral reform."
"This is obviously historic, we haven't had a coalition government in this country since the war.
"This is a big gamble for the Liberal Democrats. Because if it works, if they get some form of electoral reform, and they are seen to be part of a sucessful government, we're into a genuine three party system.
"But if they do not get electoral reform or if the government fails they will be blamed for everything. So it's a huge gamble."
