BS: Pound Declines Against Dollar as Poll Shows Hung Parliament
By Matthew Brown
April 6 (Bloomberg) -- Britain’s pound fell against the dollar after a survey showed the election Prime Minister Gordon Brown called today may result in no party holding a parliamentary majority.
Sterling dropped against all but one of its 16 most-traded peers tracked by Bloomberg as an ICM Ltd. poll late yesterday showed Brown’s Labour Party 4 percentage points behind the Conservatives, enough support for Labour to retain the greatest share of the seats in the House of Commons after the May 6 vote. The pound slid the most against the dollar in two weeks as 10- year Treasury yields surpassed equivalent gilt yields for the first time since August, after economic data suggested U.K. economic growth is likely to lag behind the U.S.’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 0.9 percent to $1.5162 as of 1:42 p.m. in London. It traded at 88.19 pence per euro from 88.17 pence yesterday and dropped 1.3 percent to 142.5 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 be able to pass deficit-reduction legislation without support from other parties.
Election ‘Uncertainty’
Brown says curbing spending too quickly risks a “double- dip” recession, while the Conservatives plan immediate cuts.
The pound fell 6.1 percent against the dollar in the first quarter as the Conservatives’ poll lead narrowed from as much as 28 percentage points in September 2008 and data showed the U.S. economy exiting recession stronger than the U.K.
“The markets hate the uncertainty of the possibility of a hung parliament or the possibility of the political parties having to work in a coalition,” said Mark Wickham-Jones, professor of politics at Bristol University. “If no one is in overall control, it will make cutting the deficit difficult, because the politics will push it to one side.”
Construction Report
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 separate data 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 as stronger U.S. economic data led to increased bets on a faster global recovery, damping demand for fixed-income securities around the world.
“Gilts have been caught by the U.S.-led sell off in global bond markets,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The U.S. economy seems to be gaining some traction, leading to revised expectations for global growth. The gilt market has largely priced in a hung parliament.”
The yield on the 10-year gilt rose 5 basis points to 3.97 percent, the most since Feb. 11, according to closing prices. Two-year gilt yields also climbed 5 basis points, to 1.2 percent.
The 10-year U.S. Treasury yield climbed 8 basis points to 3.95 percent on April 2, rising above that of the equivalent- maturity gilt for the first time since Aug. 7. It was 2 basis points below today.
--Editors: Keith Campbell, Justin Carrigan.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net
To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net
