Pound:
Sterling is continuing to trade lower than where it finished off last week as investors increase their concerns (same old story) over the UK political situation in addition to the “big one” on Thursday which will highlight the Bank of England’s latest announcement on quantitative easing (money printing) and interest rates.
Although recent opinion polls have shown a majority win for the conservatives in the next general election two polls over the weekend showed that the election would result in a hung parliament (no majority). As previously reported prospects of a hung parliament would deter investors further from placing funds in the UK as such a result would reduce the chance of the UK sorting out the mess amongst public finances.
The pound is likely to stay lower this week at least until Thursday’s announcement and confirmation that the BOE will pause on QE as many are forecasting. It is clear that the market is sitting on the cautious side for sterling as despite strong manufacturing and construction data (just out) there has been no significant move up against the majors. Service sector data is due out tomorrow at 9.30am.
US Dollar:
The Dollar maintained recent gains on Sterling and Euro but was held back from further movement as risk appetite crept back into the market after positive U.S data encouraged investors to spread their bets on riskier currencies such as the Euro and Sterling. There wasn’t a widespread move in this direction however, and Dollar gains on Sterling were supported by political concerns in the U.K. As news over the weekend suggested the U.K elections could result in a hung parliament with no clear victor looking likely to emerge. This uncertainty put pressure on Sterling resulting in recent losses against USD. Better than expected U.S Manufacturing data also helped the U.S currency against the Pound, whilst convincing a few investors to take more risks on Euro and Sterling so balancing levels out this morning.
The market waits for the BOE rhetoric on Thursday for Sterling movement against USD, whilst U.S Pending Home Sales data due later today should make positive reading and support the U.S currency. GBP/USD 1.5936, EUR/USD 1.3934.
Euro:
The Euro was still up on Sterling and the Dollar but received a rest bite this morning as risk sentiment caused some traders to buy up the single currency for short term gains. Debt concerns still weigh heavily on the single currency, preventing recent gains made on Sterling after demand for the Euro outweighed positive U.K manufacturing data.
Uncertainty in U.K politics continued to support the Euro in the short term against Sterling and whilst this is a story that could reappear many times in the run up to the U.K elections, the Euro is still on the back foot, although corporate news such as talk of a big government contract and other demand have supported the single currency this morning.
German retail sales were up this morning holding up the Euro’s recent gains whilst U.S pending home sales due later in the day are likely to have more of an effect on the market. GBP/EUR 1.1429, EUR/USD 1.3934.
Quote of the Day
Only when the tide goes out do you discover who’s been swimming naked – Warren Buffett
