May
10
Pound suffering from hung parliament
Filed Under Uncategorized | Comments Off
So 4 days after the election was held and we still have no clear outcome, although a Conservative/Liberal coalition seems almost certain. Although a hung parliament was widely expected, the markets seemed to be foolishly optimistic that it would result in a definite outcome, and when the resulting hung parliament was clear the Pound took a tanking, falling over 5c against the Euro. Sterling did put in some recovery as both Nick Clegg and David Cameron came out to say that they would be open to forming a coalition government, and their flexibility will be crucial for the Pound’s prospects over the coming weeks. The Pound is still suffering the effects of the hung parliament, and it will take not just the announcement of a new government, although that will help, but also a clear sign that the new status quo is stable and able to work on reducing the governments deficit, before the Pound manages to push up once again.
Just because there is no new government doesn’t mean that the no10 Downing Street, or perhaps more importantly at these times no11, are empty, and the outgoing Labour government are still fulfilling some of the roles of governance, one of which was Alastair Darling’s participation in the weekends EU ministers meeting and the announcement of their proposed bailout this morning. Previous announcements have underwhelmed the markets, but this time the EU have tried shock and awe, proposing a system that would not just bailout Greece, but shore up every struggling EU nation. The figures being bandied around are €500bn upwards, with an extra €250bn provided by the IMF, the ECB are also reopening some of their special liquidity measures, and will intervene directly in debt markets to ensure liquidity. The proposal has boosted stocks which had fallen as towards the end of last week the Greek crisis was performing a crescendo; the crisis even weighed down on US stocks in spite of the non-farm payrolls, normally the dominant release of the day, which showed a large increase in jobs, with upgrades to the figures of previous months. The payroll figure provides a positive picture of the US economy, but it will take a more calm and normal global setting before traders turn their attention to the optimistic figures.
After some huge one day fall last Friday the Pound has pushed back up above 1.4950, on the back of the proposed huge EU bailout, although the bailout has also given the Euro a larger boost which has taken the GBP/EUR rate down to around 1.1450. The Pound is unlikely to make any large gains until a stable government is formed, but the Euro has recovered a lot of it’s lost strength against the Dollar, climbing to almost 1.31, and more stability in the markets can only be good news for the Pound.
As the election was held last Thursday the MPC meeting has been put back to today, although as there is to be no change in rates or policy it will add little to the picture. There is little else out today to exercise the markets, so they will be left dealing with the fallout of the election and the Greek crisis. These rest of the week does provide some data for the markets to get it’s teeth into including EU GDP, UK industrial production, and unemployment figures, but for today UK traders will be waiting to hear if anything is announced from the meetings between the Conservatives and the Liberal Democrats.