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Daily Express

Pound hit by budget and election doubts

27.03.10

By Peter Cunliffe
 
The pound was hammered by volatile trading yesterday on renewed worries about the outcome of the general election and reaction to EU plans to bail out Greece’s stricken economy.

There was also continued negative reaction to Alistair Darling’s Budget on Wednesday and his failure to tackle the black hole in Britain’s public finances.

Sterling plunged to a near 11-month low against the US dollar, touching $1.4808 at one stage, though it later recovered to stay fractionally higher at $1.4864. It had been bumping along at 25 –year lows against the Australian, New Zealand and Canadian currencies, hit by concerns about the state of the UK economy and fears that May’s election could return a hung parliament.

Against the euro the pound closed slightly lower at €1.1109, as the euro clawed its way off 10-month lows against the US dollar  after EU leaders said Athens could receive loans from other eurozone countries and money from the International Monetary Fund is its financial difficulties worsened.

Duncan Higgins, currency market analyst at Caxton FX  said, “ A lot of people wonder why the pound is not stronger but it is coming under pressure because of the forthcoming general election. “There is a fear that there won’t be a majority government and that it driving sentiment. The Budget has also put pressure on the pound. The Chancellor did not lay out any specifics about tackling the deficit; it was more of a political rhetoric.”

Higgins forecast the pound would remain below $1.50 for some time, possibly touching $1.45 in May, as the American economy recovered faster than the UK’s and the US Federal Reserve indicated it would move to raise interest rates sooner than the Bank of England. He expected the pound and euro to trade within a tight range for the next few months but said the pound could recover €1.15-16 by July.

Higgins said, “As we go into the summer, we can expect the pound to pick up but nothing to dramatic.”
  
David Mackie, chief European economist at JPMorgan Chase, said: “The Greek fiscal crisis may be over for now but sovereign stress is likely to remain a huge issue in the euro area for years to come.”