AFX: The Pound continues to rise as the latest polls show the Conservatives widening the gap
The Pound rose above $1.55 against the U.S Dollar yesterday, while the UK currency also made gains versus the Euro, as the latest opinion poll showed that the Conservatives’ lead over the ruling Labour Party widened, easing concern that next month’s elections will produce a government incapable of tackling the budget deficit.
The UK currency climbed for a second straight day against the Euro, after the Daily Telegraph reported on Tuesday that a Cosby/Textor poll in 100 seats gave the Conservatives 43% support compared with 31% for the Labour Party. The Pound climbed to its strongest level since February 23rd against the Dollar, even after a report showed that consumer confidence unexpectedly declined in March.
Adam Cole, head of global currency strategy at Royal Bank of Canada, said that “the poll is probably what’s helping sterling stay up. It does give the Conservatives a much bigger lead. There is a risk that we unwind the gains we’ve had in the final weeks to the elections and the currency may weaken to 1.0752 before the May 6th elections.”
The Pound has taken advantage of broad Euro weakness in recent weeks, as concerns over the Greek debt situation prompted EU finance ministers, in conjunction with the IMF, to release €45 billion in emergency aid to the struggling nation. The UK currency has also consolidated above the pivotal trend resistance at $1.5350, meaning that a move higher may be likely in the short-term, providing stock market sentiment continues to improve.
UK stocks climbed to the highest level in 22 months, as Intel Corp’s sales forecast and JP Morgan Chase & Co’s earnings beat analysts’ estimates, while BT Group Plc rallied by the most in seven months. The benchmark FTSE 100 Index rose 0.6% in London, to the highest level since June 2008, and the Pound is benefiting against the Dollar from the overall improvement in global risk appetite.
There is a fundamental lack of UK economic data released today and therefore opinion polls will continue to be watched closely. The Pound’s momentum will be limited unless there is evidence that a decisive election result looks more likely. The main candidates, including Gordon Brown, David Cameron and Nick Clegg are involved in a live television debate this evening.
It is also the case that a considerable amount of bad news has already been priced into the market and this may prevent any heavy selling of Sterling in the run-up to the election, unless there are any fresh concerns of a credit rating downgrade. The U.S Dollar has been on the defensive in recent sessions, which has helped underpin Sterling and pushed the rate to a near seven week high of $1.55.
Euro / US Dollar
The Dollar declined against most of the 16 most actively traded currencies yesterday, ironically as a bigger-than-expected increase in U.S retail sales last month spurred demand for so-called riskier assets. The U.S currency eased its gain versus a basket of currencies, after the Federal Reserve chairman Ben Bernanke refrained in congressional testimony from saying when the benchmark interest rate may begin to rise.
Brian Dolan, chief currency strategist at Forex.com, said that “the global recovery is still on track. Risk is on.” The bullish sentiment surrounding the Australian and New Zealand Dollar is an indication that the increased level of confidence in the market is encouraging investors to sell low risk assets like the Dollar and Yen in favour of higher-risk currencies.
The Dollar declined 0.3% against the Euro yesterday, close to the lowest level in almost a month, as Bernanke said in testimony to Congress’s Joint Economic Committee that policy makers have “stated clearly” that interest rates will be very low for an “extended period.” Investors had been optimistic that the return to growth in the fourth quarter may prompt the Fed to increase rates in line with the recovery.
Data Released 15th April
U.K – General Election, televised leaders debate
