Clear coalition decision needed quickly
UK financial markets hope for a quick decision on a coalition Government following the hung-Parliament election result to maintain investor confidence and prevent negative movements in the Pound. Meanwhile, the Euro is winning back last week’s losses following an unprecedented announcement of a new European debt-funding strategy to prevent the crisis spreading.
Pound Sterling – UK Markets
The UK sits in limbo following the hung Parliament result last week, although Nick Clegg of the Liberal Democrats has suggested that negotiations will result in a deal by the end of the day. This is believed to be some form of Liberal Democrat pact to support the Conservative minority although as yet nothing is certain.
A speedy deal is hoped for by city markets as any lengthened uncertainty could affect markets and certainly the Pound. So far, the election impact has been less than some feared. Although the Pound fell sharply against the Dollar on the day of election, it has since begun to rise in response to party negotiations and the fact that the parties have made a point that reducing the budget deficit will be the over-riding priority of any coalition.
The situation in Europe is still thought to be dominating the GBP / EUR rate; the Pound has slipped against the Euro this morning following news of an unprecedented lending plan for European Governments which has stirred up confidence in the Euro.
US Dollar – US Markets
Shifts in the Dollar continue to be largely at the mercy of events in Europe. It has been sitting as the safe-haven currency and strengthening in response to the Euro’s pro-longed weakness of late, although the Euro’s re-strengthening over the weekend resulted in it making gains on the Dollar since Friday.
New U.S employment figures add to the spate of positive economic growth figures as monthly pay roll numbers were up.
Euro – European Markets
The Euro-zone has come out fighting following the Euro’s severe drop in the markets last week when the Greek rescue package caused a string of protests and speculation over its implementation. The Euro has now headed for its largest two day gain against the Dollar in a year, after dropping to a one year low against the Dollar last week.
This resurgence in the Euro is being seen as a result of the unprecedented lending plan announced by European Governments to ensure that the debt crisis does not spread. European policy makers have unveiled a loan package of $962 billion. The scale of this near-$1 trillion package to support debt ridden Governments is designed to stabilize the markets and reboot the Euro – the immediate movements seem to suggest that this has worked. However, whether in the long term, the agreements will be enough to maintain investor-confidence will be dependent on their success.
Other Currencies – Highlights
Currency swaps have been agreed over the weekend by the European Central Bank, the US Federal Reserve, the Bank of England, the Bank of Canada, the Swiss National Bank and most recently the Bank of Japan. This is to help ease escalating global financial market tensions in response to the debt crisis in Europe and to help European banks access funding in US Dollars.
As the Euro has begun to rally, stocks and commodities around the world also surged. Following, the agreement over currency swaps, the Yen fell almost the most in a year against the Australian dollar.