What will a hung parliament mean for the Pound?
Volcanic ash-clouds, alleged banking corruption and a live political battle; the past seven days have been an all too perfect example of world events manipulating currency markets. As day upon ash-sodden day the European airline crisis has deepened; a further cloud was cast over global economies by the Goldman Sachs investigation. The Pound’s own weakness has been somewhat masked by the fact that fears surrounding the Greek rescue plan have continued to simmer, keeping the Euro in a similarly weakened state. In the UK however, there is nowhere to escape the e-word. Last Thursday’s ninety-minute televised debate has been monumental in affecting opinion polls and certainly the focus of media hype. The instant surge in the polls for the Liberal Democrats has opened things up as three-horse race and Nick Clegg’s popularity has apparently reached dizzy heights. Most importantly for the currency markets however, this gives ever-more indications of a hung parliament come May 6th. A hung parliament is not likely to bode at all well for Sterling. The big issue concerning the city is that without clear leadership and a plan to reduce the countries budget deficit, Britain’s AAA credit rating might be put at risk. Concerns over a hung parliament are already affecting Sterling investors – the pound fell by one percent in the two days following the debate last week. A lot of our clients here at Currency Solutions are therefore asking their dealer the golden question: what will happen to Sterling after the election? Do I buy now or do I buy later? A hung parliament would certainly not be good for Sterling but of course there are three weeks before voting day and no-one really knows what the election outcome will be. The only certain answer to this question then is that Sterling is likely to continue to experience great volatility in the run-up and after-math of the election. The exchange rates are expected to chop and change as frequently as the polls, and for that reason one of the safest bets, as in all times of volatility, is to fix an exchange rate now for use over the coming months, and wait and see what state Sterling is in after the storm has passed. Tomorrow is a very important day for Sterling. There is a host of key economic data and news being released, including the total borrowed by the Government in the last financial year. This happens also of course to tie in with round two of the electoral debate. Will it be Sterling that takes the biggest beating?