Pound Gains on Housing Data
The pound which has been pressured by UK housing and other economic data pulled back from its decline against the US dollar and the euro. The pound has also been pressured by political uncertainty and some experts believe that the upcoming elections could result in political gridlock limiting the UK’s ability to deal with economic problems caused by the global recession. U.K. inflation expectations rose to the highest since 2008 leading many to believe that the Bank of England may raise interest rates. Stuart Bennett of Credit Agricole Corporate and Investment Bank stated, “If inflation expectations are creeping up, this may be a catalyst for the market to give sterling a reprieve.” The pound rose 0.5% trading at $1.5054 in London. On March 1st the pound fell to $1.4784 its lowest level since May 2009.
UK Elections May Result in Gridlock
Many investors remain concerned that this year’s elections may give the UK its first minority government since 1974 and political uncertainty has held the pound under pressure in global currency markets. Neil Mellor of BNY Mellon Corp. in London stated, “Uncertainty related to the election remains one of the driving forces behind the weakness in sterling. Sterling has consolidated a little bit, but we’ve seen consolidation in the downtrend since October 2009. We expect more weakness.” On Wednesday Prime Minister Gordon Brown said that the nation’s budget address will be delivered on March 24th and also said that UK recovery is “fragile” and in early stages. Goldman Sachs Group strategists have reduced the three month forecast for the pound against the euro due to election concerns.
Euro Gains Slightly vs. Dollar
Thursday’s euro trading was somewhat quiet and the euro recovered slightly against the US dollar and the yen. The euro remains under pressure due to lingering investor concerns about Greece’s debt crisis and the possibility of the crisis spreading to other Euro Zone nations. German Chancellor Angela Merkel said that Greece’s first priority should be to win back the confidence of markets and said that the nation’s austerity measures are a positive beginning. Merkel stated, “Confidence in the markets and in the euro can only be regained when Greece itself makes (Greece) work.” Expressing the concerns of many traders and investors Michael Malpede of Easy Forex in Chicago said, “There’s a perception that the Greek austerity plan is only a temporary pause on sovereign debt risk, and there’s concern that there could be problems in Portugal, Spain, Ireland. If anything, traders appear to have a preference to sell the euro on rallies.”
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