Sterling Euro at 9 month high as election nears.

Good Morning. The Pound has hit it highest level since 11th August 2009 against the Euro this morning as a hung parliament is priced into the market and debt fears in Europe are still a main concern. EUR/USD is now below 1.3! Rates @ 08:50am are as follows:

  • GBP/EUR 1.1695
  • GBP/USD 1.5139
  • GBP/AUD 1.6661
  • GBP/NZD 2.1027
  • GBP/CAD 1.5553
  • GBP/ZAR 11.450
  • GBP/JPY 143.17
  • GBP/CHF 1.6746
  • EUR/USD 1.2942

Once you’ve finished reading today’s blog it might be worth reading the following link:
which is a very good article from Bloomberg on how the election could affect the Pound depending on the result.

USD report for this week

Over the past week we have seen a high level of volatility for the Sterling-Dollar currency pairing with a 2.4% difference between the highs and the lows of the week.

On Monday, the Dollar gathered strength on the back of a host of data releases; new U.S. home sales rose at their fastest pace in 47 years in March and new orders for durable goods grew strongly causing Cable to fall.

This was however short lived as the Pound reversed the previous Friday’s losses, posting broad gains against a basket of currencies based upon a boost in opinion polls for the Conservative party and a jump in house prices. Ian Stannard, of BNP Paribas, said that the news had lifted Sterling. “It suggests that the Conservative party might just be able to scrape an outright majority and the UK could avoid a hung parliament.” The prospect of a hung parliament has weighed on the Pound, given that such an outcome could produce a government that lacked the strength to reign in the UK’s record fiscal deficit.

Fears of economic hardship caused by a hung parliament were abated by all three UK political parties remaining committed to cutting Britain’s deficit. Mansoor Mohiuddin, managing director at UBS stated that if the election does result in a hung parliament, the Pound could fall initially but weakness would be brief. “There will be a period of uncertainty as two of the three parties try to form a working coalition. But once this is done, the new government is likely to pass a summer Budget showing how it will deal with Britain’s public finances. “That should calm Sterling fears,” he said.

Last week Goldman Sachs advised clients to buy Sterling, arguing that the UK’s growth prospects were relatively strong, and agreeing with UBS that fears of a hung parliament were overblown.

Tuesday saw the Pound drop away from its range highs around 1.5500 as the US Dollar benefited from safe-haven buying after an afternoon of downgrades on European debt ratings, whilst on Wednesday the Federal Reserve kept interest rates at 0.25% as Ben Bernanke said that US economic activity is starting to improve. He also stated that the central bank would hold interest rates steady for an extended period. This strength given to the Dollar, confirmed by Bernanke, was further compounded by analysts views that Sterling will remain vulnerable until the next government is formed.

“Sterling is still trapped by political uncertainty which may persist after the election,” said Elsa Lignos, currency strategist at RBC. “We know we’re in hung parliament territory….but other than that we’re not certain”. Sterling thus fell as low as $1.5142, before pulling back to $1.5210.
Investors still fear that if no one party wins an outright majority , the incoming government may struggle to cut the UK deficit which comes close to 12 percent of gross domestic product.

Last week’s political debates further highlighted the power that the political situation currently holds in the currency markets. “The market remains concerned about a hung parliament and with Cameron looking to have come first in the last TV debate this offers a little bit of hope,” said Audrey Childe-Freeman, currency strategist at Brown Brothers Harriman.

With all this political uncertainty and ever changing majority forecasts in opinion polls, it is well worth taking the time for a consultation with your Account Manager here at the Foremost Currency Group. We keep abreast of economic data releases and opinion polls to allow us to deliver sound market knowledge, helping maximise your Sterling/Dollar currency potential.

As we look to the week ahead and consider the bank holiday on Monday, ISM Manufacturing and ISM Non-manufacturing data on Tuesday and Wednesday will have a large impact on the currency pairing. However, it will be Thursday’s General Election that will have most gravity where Sterling is concerned. An outright majority for the Conservatives is likely to give the Pound strength, whereas the uncertainty of a coalition government could be detrimental to the currency.

So with the continuing electoral domination of the markets and the media, coupled with the aforementioned data releases; many clients at FCG are taking advantage of Stop Loss and Limit Order tools. Talking to your Account Executive and knowing where to place a minimum and/or maximum on your exchange rate could help to optimise your purchase. This would safeguard against any potential loss should the market drop and ensure that you are able to take advantage of any upward spikes without having to watch the goings on within Westminster.

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