Announcement of New British Coalition Government treated cautiously by investors
Britain is to have its first coalition Government since the Second Wold War.
New Conservative Prime Minister David Cameron is making a coalition deal with Nick Clegg of the Liberal Democrats ending thirteen years of Labour Government. The announcement yesterday seems to have given only a short-lived boost to the Pound which has begun to retreat this morning although is still showing signs of volatility.
Pound Sterling – UK Markets
Investors have been keen for the last few days’ uncertainty hanging over the future of the UK Government to end. Markets have suggested that the Pound would strengthen if investors felt that a strong Government was formed who had the Parliamentary ability to pass measures to cut the UK budget deficit.
There was an immediate rise in the Pound yesterday evening following the announcement that a Conservative-Lib Dem decision had been reached. However the movements so far today, (particularly the Pound losing ground against the Dollar) suggest that investors are as yet not over-confident in the easy workings of the coalition to meet their budget cut pledges.
Part of the coalition agreement is that Britain will not join the Euro.
David Cameron’s first day at 10 Downing Street has seen a release of poor jobless data figures this morning – unemployment rose by the highest level for fifteen years in the first quarter. The Bank of England's quarterly inflation report is also due today.
Deep-set weakness in the Euro means that the GBP / EUR rate is still at a very high rate, trading at 1.17805 at 10.30am.
US Dollar – US Markets
The U.S. Dollar gained today versus most of its major counterparts. The volatility in the Euro and the Pound continue to benefit the Dollar which is consolidating its strong position.
The monthly budget statement is due today.
Euro – European Markets
The Euro still sits weakly in the market following Monday’s short-lived boost of confidence following the most recent rescue package announcement. It is thought that investors still have deep-set reservations about the ability of the Euro-zone to curb the crisis.
Spain has come under scrutiny as the next nation to follow in the wake of Greece. The Spanish Prime Minister has announced measures to cut the Spanish deficit, aiming to cut it to 4.7% of GDP by the end of 2011 (from the current 11%).
Germany’s economy on the other hand, has unexpectedly grown in the first quarter attributed to rising exports and investments.
Other Currencies – Highlights
The Yen has risen against all sixteen of its major counterparts. This has been attributed to it being viewed as a safe haven currency of choice, following a report that Morgan Stanley will have to answer to federal prosecutors following allegations that it misled investors.
The Canadian Dollar is another currency benefiting from the Euro-crisis, climbing to an eight-year high against the single currency.