To be fair, there does seem to be some support for Sterling as forex dealers are buying in numbers. Unfortunately this is unlikely to help much as the world and his dog seem set against poor old Sterling once again.
Sterling continues to weaken as the prospect of either a renewed Labour administration or a weakened coalition gets more likely by the hour.
The UK’s Liberal Democrats have also announced that they want to ban bank bonuses and implement the ridiculous ‘Robin Hood tax’.
The really worrying thing is that one or both of these might be one of the more stupid payments they will extract to gain their vote for power.
It is difficult to imagine a more destructive policy promise for the UK.
Banning bonuses would immediately lose the entire investment and international banking infrastructure built up over several centuries.
Whilst the ignorant might say “so what?” the more prudent would point out that the invisible revenue generated for the UK by the square mile is enormous compared to the number of people employed.
The UK is in danger of driving out the very people that it will most need in the years ahead.
As Simon Denham of Capital Spreads commented, “The Pound has now dropped below $1.4900. The low came after more scares in the election polls weakened the Pound and then rumours swept through trading rooms of huge fund liquidations and rights issue currency hedge sellers for the Prudential/AIG deal.
“To be fair there does seem to be some support below the $1.49 mark and dealers are buying in numbers. Unfortunately this is unlikely to help much as the world and his dog seem set against poor old Sterling once again.”
What started out a few weeks ago as an attack on the Euro has mutated into the possibility of turning into a classic Sterling crisis.
It seems that the best policy for forex market traders is probably to have ‘no policy’ as crosses swing wildly this way and that on a moments notice. In particular, the GBP/USD cross has fallen fifty points, rallied fifty points and fallen back 40 points in the time it has taken to write the last few paragraphs.
There is still some support for Sterling but it is difficult to find just now. The problem is that the recent price trend might seem to indicate a renewed attempt to move back to the $1.4380/1.4400 level. Another five cents lower.
The currency markets are, naturally, impacting the equities markets. European equities continue to climb as the Euro weakens. Note though, the overall momentum of the leading European indices does seem rather weary.
For Global investors UK equities must appear ludicrously cheap. Unfortunately it would take a brave investment advisor to recommend Sterling assets at this moment in time.
In the meantime the Euro, which was the initial trigger to all of this, is sitting in the low $1.35’s and looking comfortable with the current situation.
Support for the Euro has been repeatedly tested during in all the chaos surrounding the Pound. However it seems that there was no appetite for another bash and we bounced back into the middle of the recent trading range.
$1.3450 is proving to be something of a difficult barrier to break as we have now failed three times to make any impact.
Either we are building up for a really impressive period of Euro-bashing or we have found a floor.
Right now, both scenarios appear reasonable however the trend is always difficult to completely ignore and the Euro has been on the bear tack for some time.
