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Posted May 12th, 2010 by Charles Purdy

New Government & Sterling by Charles Purdy

So we have a new government in the UK. An interesting set up and certainly a bold move by David Cameron to move things forward. It certainly must be a dream come true for many of the liberals who probably thought they would never have any ministerial positions ever.

There has been lots of talk about the deals being done on electoral reform and nuclear deterrent but the key is still what is to be done about the huge budget deficit and the need to match government income to expenditure. Initial talk is about an emergency reduction in government expenditure of £6bn but this will only be the start and not nearly enough.

What will the effect be on sterling? Initial reaction has been neutral to slightly positive.

But given on-going problems in the euro zone where the rescue package announced last weekend seemed by many to be an effort to paper over the cracks and some fundamental problems still needing to be resolved, sterling could start to gain especially if this coalition government does have the willpower to sort out the deficit.

And against currencies such as the US$ and the commodity backed currencies such as the Australian and Canadian dollars sterling could continue to weaken as they are ahead of us in their economic recovery.

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