So far, so Brexit.

The day after a political earthquake, the value of the pound has dropped sharply while the globally focussed FTSE 100 is on the rise.

The market abhors uncertainty and once again the UK has been plunged into political chaos by what must surely be seen as a historic miscalculation by Theresa May to call a snap election.

Before the reveal of the general election exit poll at 10pm last night the pound was at $1.2956 fell sharply when the poll suggested PM Theresa May would lose her majority.

The value of the pound fluctuated in the early hours of the morning as a dramatic night of election results unfolded, but dropped 2% to $1.2699 as the uncertainty of a hung parliament was confirmed. This represents sterling’s lowest level since the election was called in mid-April, though notably higher than the $1.20 it hit in January.

Given the political situation in Northern Ireland – with the DUP likely to back a Tory government and Sinn Fein declining to take up its seats in the UK parliament – the Conservative position is probably less insecure than first appears.

But even the quick formation of a new government is likely to do little to settle the markets given the host of unanswered questions that have emerged post-election.

Clearly the position of May herself is under threat. If she is replaced a new PM means new policy priorities, Brexit approach and potentially a new election as they seek a mandate of their own.

Even if May soldiers on, it seems the fragility of a minority government is unlikely to last for a full five-year term – meaning more upheaval.

Perhaps the key issue for sterling is what this result means for the UK’s Brexit negotiating position – a process which is slated to start in just ten short days.

But here uncertainty rules too. If May had secured a large majority, would that have made a hard Brexit more likely given her pre-election tone or would it have given her a stronger hand to play with the hard Brexiteers in her own party to deliver a softer, more market friendly Brexit?

How does losing her majority affect this position? Do the more rabid anti-EU voices grow in influence given the government’s precarious position or does the national rout of UKIP and rise in seats for the less Brexit-enthused Labour and Liberal Democrats water down the Brexit mandate and create wiggle room for a more EU-friendly exit?

Does Brexit even happen now as scheduled as May’s position looks potentially untenable and negotiations commence so rapidly? Maybe even the door has been opened to a second referendum given the Tory losses?

The other issue the markets will have to weigh up is the effect of Labour’s resurgence and whether its more business hostile stances on tax and regulation outweigh its more business friendly Brexit aims.

Standard Life summarised the confusion this morning: “The lack of an outright Conservative majority increases uncertainty about the path of Brexit negotiations.

“Not only will it give more voice to disparate views within the Conservative Party, but the position of the DUP as well as the other major parties will have to be incorporated in the negotiation process in order to pass exit legislation. Although the result increases uncertainty about the Brexit process, this need for compromise could push the government towards a more conciliatory approach to negotiations.”

Richard Berry, founder of the currency specialists, Berry FX added: “The markets opened on Friday exactly where they didn’t want to be — with a huge cloud of doubt hanging over both Britain’s political future and the course of Brexit.

“In reality, of course, the Brexit negotiations will be put on ice. There are so many variables in play that the Pound could even rise in the days ahead as the likelihood of a soft and more palatable Brexit increases. As perverse as it seems, political chaos could ultimately translate into Sterling strength.”

David Lamb, head of dealing at FEXCO Corporate Payments, said that while it is now possible that the Brexit deal could be softer than mooted by May, “for now this remains too theoretical to have much bearing on the markets.

“The blunt truth is that Brexit uncertainty is back with a vengeance – and the pound is once again in the firing line.”

HSBC last week offered an even gloomier prediction before last night’s surprise results, forecasting that pound and euro would reach parity by the end of 2017 given concerns over Brexit negotiation process and stronger eurozone economic performance.

If sterling does remain supressed during this period of uncertainty – which given the complexity of Brexit negotiations is likely to be a longer period rather than shorter – it will provide another tailwind for mounting inflation.

Inflation, as measured by the consumer price index, jumped to 2.7% in April, the highest since September 2013 with food price inflation a key driver.

In simple terms, if the value of the pound continues to be surpressed the cost of underlying inputs and commodities will rise and this current inflationary trend in both grocery and wider economy will continue.

Perhaps surprisingly the Grocer Price Index this week found that overall grocery inflation eased for the second consecutive month in May. The GPI - collated by Brand View from more than 60,000 supermarket SKUs - stood at 0.9% in the month to 1 June, down from the 1.1% rate recorded to 1 May and the 1.4% to 1 April.

Although this is the fourth consecutive month of price inflation, the easing of the headline rate seems to be linked to a recovery in the pound – back to $1.29 from $1.22 in March – on (misguided) expectations of post-election stability.

As the pound suffers, it seems likely grocery inflation will get a second wind.

In that case – as the markets this morning and post-Brexit showed – the big global fmcg players can make hay as they convert their international sales back into a devalued pound, while those reliant on the UK economy struggle.

That latter group includes supermarkets, who are vulnerable both to input cost increases eating into their margins and weak consumer confidence and conditions hitting sales.

Nevertheless, the supermarkets and domestic food suppliers are perhaps better positioned than most in the UK to cope with this dynamic given the brutal price war they’ve survived while other UK consumer businesses enjoyed benign conditions.

Peel Hunt concluded this morning: “The food companies have already coped with the increases costs from sterling weakness, so there should be little further impact”.