Sterling hampered by political uncertainty

Growing concern over the UK’s political situation is taking its toll on the pound. Together with the inevitable check-back as traders book profits from its sharp rally over the last ten days, the resignation of several senior politicians this week has rocked investor confidence. The latest, work and pensions secretary James Purnell, who quit last night, is the first to openly call for Prime Minister Gordon Brown to stand aside. The results from yesterday’s local and European elections are expected to be very poor from Labour’s point of view. If they are, this will only exacerbate the situation. Political uncertainty is rarely good for the local currency as it almost always gives investors jitters about investing in the UK before the situation is resolved.

Political problems hamper pound against euro

The pound fell by 1.16 cents (1.01%) against the euro yesterday, finishing the day at 1.1402.

• In early trading yesterday sterling rose against the euro, after a report released by Halifax showed a 2.6% rise in UK house prices last month. In addition, the Bank of England’s decision to keep interest rates on hold and not extend their quantitative easing programme kept demand for sterling high as the central bank appeared to adopt a ‘wait and see’ position.
  
• However, rumours that Prime Minister Gordon Brown had resigned after lunch caused a sharp fall in sterling’s value, driving it into negative territory. This fall was exacerbated by the news the European Central Bank had left their interest rates at a historic low of 1.00% and decided not to extend their planned asset purchase programme.
  
• In trading so far today the pound has continued its slide against the single currency as investors continue to eye the UK’s fragile political situation carefully.
  
• There are no major announcements due in the eurozone today, while in the UK PPI Input (MoM) is out at 09.30 BST.

Sterling finishes down against US Dollar on political uncertainty

Sterling weakened by 1.41 cents against the US dollar yesterday, to close the day at $1.6174.

• In early trading yesterda, sterling weakened against the greenback as concerns over the dollar’s status as the world’s reserve currency abated. However, the Bank of England’s decision to keep interest rates at 0.5% and stick to its £125 billion quantitative easing programme provided some lift for sterling as investors took this as a sign the central bank’s strategy could be working.
  
• However, rumours that Prime Minister Gordon Brown was set to resign caused a sharp tumble in the pound, although this was quickly refuted as “absolute nonsense” by his office. Nevertheless, a mixed day on equity markets, coupled with a batch of profit-taking by traders after the pound’s sharp rally over the past week, drove sterling lower.
  
• In trading so far today the pound has continued its slide against the greenback, as concerns mounted over the UK’s political situation. Work and Pensions secretary James Purnell is the latest minister to quit the cabinet, and the first to openly call for Prime Minister Gordon Brown to stand aside.
  
• In the UK, PPI Input (MoM) data is out at 09.30 BST, whilst in the US Non-Farm employment figures are due at 13.30 BST.

Euro finishes up against the US Dollar

The euro strengthened by 0.24 cents (0.17%) against the US dollar yesterday to finish the day at $1.4182.

• In early trading yesterday the dollar strengthened against the euro, as the greenback’s position as the world’s reserve currency of choice was affirmed. Wednesday evening’s announcement by Fed Chairman Ben Bernanke that he saw no threat to the greenback’s number one status fuelled its gains early on.
  
• The ECB’s decision to leave interest rates on hold at 1.00% and not extend its planned asset purchase programme was taken positively by the markets, sending the euro into positive territory. However, ECB President Jean-Claude Trichet’s assessment that it was extraordinarily important for US authorities to express support for a strong dollar stifled the single currency’s gains.
  
• In trading so far today the euro has continued its rise against the greenback, as investors await important US unemployment data at 13.30 BST. There are no major announcements due in the eurozone today.

Aussie gains against sterling

The Australian dollar made gains against sterling yesterday, after stronger commodity and equity markets helped support higher yielding currencies.

• Sterling remained largely unaffected by the Bank of England’s decision to keep rates on hold, as it also stuck to its planned target for quantitative easing.
  
• Today investors will eye British Producer Price figures for further direction.

Kiwi finishes up against sterling

The New Zealand dollar strengthened against the pound yesterday, boosted by demand for higher yielding currencies.

• Investors will now turn their focus to next week’s Reserve Bank of New Zealand interest rate decision.
  
• The central bank is generally expected to follow in the footsteps of the RBA in keeping rates on hold, although some analysts feel a 0.25% rate cut may be on the cards.
  
• The statement from the central bank will be watched very closely by investors.