Brenda Kelly on election uncertainty and the GBP
Date: Thursday 07 May 2015
It's a cliché because its true, writes Brenda Kelly, head analyst at London Capital Group, markets do not like uncertainty. The potential impact of today's general election has taken a while to hit home with financial markets, with investors remarkably sanguine until now.
The downward pressure in the FTSE 100 presently cannot really be attributed to election outcome concerns, however, I believe.
We are witnessing a broad-based risk-off attitude on the back of US Federal Reserve chief Janet Yellen's comments yesterday about the lofty prices of equities, which was further reinforced by heavy handed comments from the Atlanta Fed's Dennis Lockhart in respect of when the markets might expect to see a rate hike.
Back on the ground in the UK, it's the closest-fought race in many years and as such it will take a while to understand how the government will be formed and the ramifications of the probable coalition will not be immediately known.
We could probably expect a knee-jerk reaction in the sterling crosses whatever happens.
GBP has seen a degree of softness against the dollar over the past year but has been reasonably strong on a trade weighted basis.
Given that the UK was the fastest growing developing economy last year, this weakness has been down more to a strong dollar and interest rate differentials and expectations.
Having failed to make much headway through the $1.54 marker recently, the pound has retreated but has found support around 1.5090/1.51.
A Conservative majority or Tory-led coalition might well be construed by the markets that the recent progress in the economy could continue and could be bullish for the pound.
Capped by the 1.5545 level and the 50% re-tracement from the September 2014 highs to the lows of this year at 1.4566.
A move through the 1.5314 level could bring about a test of 1.55 with the major resistance and barrier to real upside residing at 1.5545.
Certainly, the prospect of an EU referendum under the Tories will be something to be concerned about for debt financing over the medium-to-longer term.
A week is a long time in politics and the markets may well take their time manifesting any real issue with this potential change.
Special promo:
Trading the Forex Market? Visit FXmania.com to get advanced infomation about currencies and the Foreign Exchange
Market.
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN