Currency Update – Monday 26th April

Currency Update – Monday 26th April

Only 10 days to go until we finally get to the end of the election campaign, and the polls are still showing a hung parliament, although the Conservatives are pulling slightly ahead. It is a sign of how broken our system is that even in the polls that give Labour the smallest proportion of the votes of the three parties, the projections still give them the largest number of seats. Nick Clegg has said over the weekend that he wouldn't prop up Gordon Brown if Labour came third in the popular vote, although he didn't answer the obvious question that if the Lib Dems came third then what mandate would they have to prop up a 2nd place Gordon Brown. As a hung parliament seems more and more likely, the markets seem to have come to terms with the idea. and the Pound isn't taking the hit that many thought it might, possibly due to the general consensus between the parties that the deficit does need to be cut, with the only real debate being how and when.

The Pound has actually performed well over the last week, with not even last Friday's weak GDP figure making much of a dent. The expectations were for a 0.4% growth figure, but with the poor weather in January the risks were that we would get a lower figure, and we did, with the initial estimate coming in at just 0.2%. Of course this figure will be amended in the coming months, the initial estimate for the previous quarter was 0.1%, but was revised up to 0.3%, but even so the effect it had on the Pound was surprisingly short lived. The Pound dipped down to 1.53 briefly on Friday, but has already put in a strong recovery to sit around 1.5450 this morning. The rally can be put down to general optimism, as US figures on Friday painted a rosy picture, as well as a positive UK Hometrack house price survey released overnight, which showed house prices rising, although at a slow rate

The Pound has also bounced back against the Euro, after slipping below 1.15 after Friday's GDP figures. The Euro is finding it hard to gather any support at the moment, as the current proposed bail out plan is still not ready to be used, and even then more may be needed. Germany is continuing to drag it's feet, hinting that it may veto any bailout if it wasn't convinced by Greece's austerity measures, and even a G20 IMF meeting on the weekend discussed the issue, but failed to make any meaningful comment on any proposed measures. The meeting also fudged the issue of currency manipulation, not even discussing the issue, because, as Japan's finance minister said 'China wouldn't like that very much'. With the Euro failing to get any support, the Pound has continued to recover, and is hovering just under 1.16 this morning.

After last weeks bumper week of data, this week is more sparse, We do have the CBI distributive trade survey released tomorrow, but that's about it for the UK. Over in the US they have the Fed's rate decision, once again expected to hold, although there is some speculation that they may change the wording of their statement to indicate a slightly more hawkish bias. These is also US GDP figures released on Friday, which will show just how anaemic the UK's growth is as the forecast are for 0.8%, 4 times as fast as the UK. Although these is no data supporting the Pound, it is still well supported by general market conditions, and looks to be on an upward trajectory especially against a crumbling Euro.

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