Sterling still weak on political uncertainty

Good Morning. After falling on Monday on political uncertainty, Sterling remained fairly rangebound against the Euro, but has climbed against the US Dollar. Rates @ 08:30am are as follows:

  • GBP/EUR 1.1016
  • GBP/USD 1.5000
  • GBP/AUD 1.6606
  • GBP/NZD 2.1620
  • GBP/CAD 1.5516
  • GBP/CHF 1.6115
  • GBP/ZAR 11.345
  • GBP/JPY 133.05
  • GBP/NOK 8.9085
  • EUR/USD 1.3613

Why the pound is weak
The prospect that an election expected in May could result in no one party having a clear majority has raised concerns that any incoming government may not be able to take the harsh measures needed to cut the UK’s ballooning budget deficit. A new opinion poll published showed the opposition Conservatives regaining their advantage, while another showed their lead shrinking. Both still suggested Britain was heading for a hung parliament. Also, the fact that Gordon Brown may yet remain our prime minister for another 4 years was enough to send the pound crashing, so the markets reflecting what many think about his leadership.

Concerns about a weak economy and the possibility that the Bank of England may opt to expand asset purchases under quantitative easing is also keeping the pound weak versus other currencies.

UK confidence up
UK consumer confidence reached a 2 year high last month, as sentiment was buoyed by the news that the country had exited recession, a survey has said. The report said consumers were also now more confident about how the economy will develop as 2010 progresses. The UK emerged from recession during the last three months of 2009, but only just. Consumers may be more confident, but this is not reflected in the Retail Sales, which are a barometer the markets look to for a real understanding on confidence.

The fact we only just exited recession by a fraction of a percent, when other countries are recovering faster is keeping Sterling exchange rates low. Fears on Greece however, mean that the Euro may also weaken significantly, so GBPEUR rates could move either way in the coming weeks and months.

Pound vs Australian Dollar
Australia’s economy grew strongly in the final three months of 2009, capping a year in which it was the only major economy to avoid recession. The nation grew 0.9% in the 3rd quarter, its biggest expansion since March 2008, the government’s statistics bureau said. Australia’s central bank has raised interest rates, for the fourth time since October, as it seeks to cool its growing economy.

The increase, to 4% from 3.75%, was widely expected by economists. Australia was the only major economy to avoid recession, and the first to raise rates from 50-year lows as the economic crisis eased. higher rates, as I outlined in a report earlier this weak, mean more return for investors and so spurs investment into the area. The result is a stronger Aussie Dollar, and it is therefore more expensive to purchase. GBP/AUD rates are now the lowest in well over 10 years (as far as my charts go back, but far enough to illustrate the sorry state of affairs for Sterling right now)

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