BLBG: Pound Declines as Poll Shows Election May Give Hung Parliament
By Matthew Brown
April 6 (Bloomberg) -- The pound fell against the dollar and euro after a survey showed the forthcoming British election, which Prime Minister Gordon Brown called today, may result in no party holding a parliamentary majority.
Sterling dropped against all of its 16 most-traded peers as an ICM Ltd. poll late yesterday showed Brown’s Labour Party 4 percentage points behind the Conservatives, enough support to keep Labour the biggest party in the House of Commons after the May 6 vote. The pound dropped the most against the dollar in two weeks and 10-year Treasury yields surpassed equivalent gilt yields for the first time since August after economic data suggested the U.K. economy is likely to lag behind the U.S.
“The pound has unwound some of yesterday’s gains after the ICM poll shows us well into hung-parliament territory,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “Sterling is likely to trade in lockstep with what the opinion polls show for the next month until the election.”
The pound fell 1 percent to $1.5150 as of 10:46 a.m. in London and weakened 0.5 percent to 88.56 pence per euro. The British currency dropped 1.5 percent to 142.15 yen, its first decline against the Japanese currency in 10 days.
Sterling rose yesterday after a poll by YouGov Plc, published before the ICM survey, said Conservative opposition leader David Cameron’s lead over Labour, which he’s held since late 2007, widened to 10 points from 2 points last month. Sterling has risen when polls have suggested Cameron would win enough seats to pass deficit-reduction legislation without support from other parties.
Economic Reports
The British currency fell even as a report by Markit Economics and the Chartered Institute of Purchasing and Supply showed U.K. construction expanded in March for the first time in two years. The index of building activity, based on a survey of purchasing managers, rose to 53.1 from 48.5 in February. Readings over 50 indicate expansion.
A report yesterday showed U.S. service industries expanded in March at the fastest pace since May 2006, while a separate report on April 2 showed employment in the U.S. increased in March by the most in three years.
“The European market has come back from holiday and is digesting some very positive U.S. data either side of the weekend,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “Rate spreads have moved in favor of the dollar.”
U.K. government bonds fell, with the yield on the 10-year gilt rising 8 basis points to 4.01 percent, the most since Feb. 11, according to closing prices. Two-year gilt yields climbed 7 basis points to 1.22 percent.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net
