The notion of a hung parliament has weighed heavily on the pound over the past few months but surprisingly the impact recently has been relatively muted.

Over the past couple of weeks, developments in the eurozone have stolen focus, which has worked in favour of the UK currency.

How the market will react to a hung parliament remains a subject of debate though, in particular, how sterling might be affected.

Commenting, Duncan Higgins, senior analyst at Caxton FX, said, "The problem lies in uncertainty. The market has little political bias and simply wants to see a single party gain power. Sterling could come under heavy selling pressure on Friday should no clear winner emerge as doubts will remain over the government's ability to finance the deficit."

Higgins continued: "Soaring gilt yields and a run on the pound are unlikely. However, a heavy sell off in the UK currency is a strong possibility as concerns will intensify over the stability of the economic recovery, which is still far from assured."

It has been bounded around that the possibility of a hung parliament has for the most part been priced in and that it could even be beneficial for the economy.

On this, Higgins added: "Regardless of their differing means and methods, all three parties do have the same goal - to reduce the deficit."

Over the medium term, as the political focus ebbs, the more common economic fundamentals will return to the fore, added Higgins.

Should figures from the UK economy continue to improve, the pound may begin to make a steady recovery.

Against the euro in particular, where the issues surrounding the peripheral nations are refusing to subside, sterling could ease back towards €1.20 by the autumn.

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