Sterling has nightmare day on political concerns

US Dollar:

The Dollar continued to shine yesterday as markets resumed the flight to safety policy and traders poured out of both the Pound and the Euro in favour of the greenback. The US economic figures posted during the day were reasonably poor but it mattered not, FX traders had much larger concerns in hand such as the events going on across the pond in the UK and Europe. The dollar staged a remarkable rally against Sterling, stretching over 4 cents at one point during mid morning trade in London. As cable traders paused for breath just before lunch, the US trading desks fired up and duly sent EURUSD spinning 2 cents lower from 1.3650 to 1.3458 as the end of the month rally came crashing down in flames. Other than risk aversion, the US Dollar may benefit from unem¬ployment data due out this week with Non farm payroll being released on Friday and its private counterpart, ADP payroll being released on Wednesday.
Data— US Oil inventories (FEB), ABC Consumer Confidence (FEB) Total Vehicle Sales (FEB)

Pound:

Sterling was hammered into oblivion yesterday as the Times raised the prospect of an early general election along side the very real possibility of a hung parliament. Although this may seem like a side issue, market par-ticipants are concerned that a hung parliament would reduce the ability of any ruling party to execute the wide range spending cuts which are needed to bring the UK ballooning deficit under control. At one stage the pound which had traded at 1.5247 on Friday evening, fell to 1.4784 before rallying. Against the Euro, it plummeted from a Friday high of 1.12 to a 3 month low of 1.0960 before recovering over the 1.10 level. It was sterling's worst day since February last year and analysts warned it could sink further as the political uncertainty contin¬ues. With Labour being required to hold an election before early June we do not expect the Pound to find any favour in the short term. Also weighing heavily on the UK currency was the announcement by the Prudential that they are to buy AIA, the Asian insurance arm of AIG for 35 billion USD. As this will be primarily funded by UK investors, a few large GBP/USD trades will be carried out, putting further pressure on the Pound. With no eco¬nomic data of importance out in the UK today or tomorrow, traders will be looking for the Bank of England inter¬est rate setting meeting on Thursday to give them another excuse to sell, sell, sell.
Data— UK PMI Cons (FEB)

Euro:

The single currency had a mixed day yesterday, ascending over 2 cents against Sterling while giving up 2 cents against the Dollar. On the whole, the Euro was sold by traders as concerns over sovereign debt of its members and a general flight to safety took hold. Rumours of an elite group of hedge funds, betting on the col¬lapse of the single currency did nothing to help the situation. EURJPY is currently sat near its 12 month low and EURUSD break below 1.3460 will open the psychological level of 1.30. Any ongoing weakness could benefit the UK importers though as traders are looking for the pound to befit and move into the 1.16 to 1.20 level during the course of 2010.
Data– EUR Italian CPI MoM/YoY (FEB) EUR CPI YoY (FEB)

General:

• Australian central bank hike rates to 4% as inflation is on or close to target.

• UK banks see surge in bad debts. Institutions write off £4.12 bn in Credit card loans

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