Prospect of early election continues to weigh on the pound

US Dollar:

The dollar seemed to be in a wait and see mode yesterday as it was unchanged against most cur-rencies, but has seen a dip on the yen, with the Japanese currency taking advantage of a fall in risk appetite. Analysts said markets are waiting for US figures on trade and weekly jobless claims that are scheduled to be released today. “Fundamentally, we have an improving economy going forward for the market,” said Wells Fargo Advisors chief market strategist Al Goldman, referring to the US. The dollar traded in-between the $1.49—$1.50 range against sterling but there was a small decline on the euro which saw some support from a strong sale of Portuguese bonds. Data 13.30: Trade Balance -$41.0B from -$40.2B + Jobless Claims.

Pound:

This week continues to blow hot and cold for the pound after a good start for sterling was seen until the first round of economic data released on Monday at 9.30am. Since then players have sold the UK currency on continuing weak data which has been pointing towards a stalling UK economy. Yesterday was no different as a surprise fall in British Manufactory output saw the pound put to the sword. The ONS said output declined 0.9% at the beginning of the year compared to December, marking the biggest drop since August and falling far below analysts expectations for a rise of 0.3%. Yet another nail in the coffin for Brown’s wonderful handling of rejuve¬nating the UK economy! Sterling, which had been recovering from a week low against the dollar, immediately reversed, losing more than 1.5 cents to $1.48. Against the euro we saw a similar move downwards, with GBP/ EUR falling below the 1.10 level, hitting 1.0950 at the low. Yesterday’s month on month decline for industrial production also added to growing fears about the strength of Britain’s economic recovery after the country emerged from the longest recession in post-war history at the end of December. Maybe Brown can blame the figures of the weather being a little cold, just as they tried to do in the US when gearing the markets up for weak jobs data last week. We also heard from Gordon Brown yesterday as he announce the budget will be on March 24th, bringing closer the prospect of an early election in May, something which has been un-nerving the fragile pound as an early election points towards a much higher chance of a hung parliament. This would be a night¬mare scenario for the currency as the perception would be the high levels of debt which the UK is buckling un¬der, would not be brought down quick enough for the global markets liking. Not a sausage.

Euro:

Today sees the euro steady against sterling after eating up more gains against the under fire pound, but the single currency grapples with its own demons as belt-tightening plans of peripheral nations still need to be implemented. A tick in the euro’s box was seen in the form of good demand for Wednesday’s sale of a long dated Portuguese government bond, with Portugal’s Treasury and Government debt Agency reporting the sale of EUR990m of the bond after planning to sell only €750m. The successful Portuguese bond issue helped allay some fears over the European debt crises. A move higher against the dollar was seen on the back of this as EUR/USD traded higher by a cent to top $1.3678. Data 10.00: ECB Publishes Monthly Report.

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GBP/USD	1.4988
GBP/EUR	1.0979
EUR/USD	1.3649
GBP/JPY	135.55
GBP/AUD	1.6361
GBP/NZD	2.1418
GBP/ZAR	11.1811
GBP/CHF	1.6048
GBP/CAD	1.5374
GBP/SGD	2.0962
GBP/THB	48.94
GBP/HKD	11.6269 red-down; blue-up (snap shot