USD/GBP Rate & Comments for 12th May 2010

USD/GBP – 1.501

Sterling rose yesterday as Gordon Brown tendered his resignation from office and David Cameron became our new Prime Minister, agreeing a coalition with the Liberal Democrats that sees them part of government for the first time in 70 years. After a volatile day, sterling recovered some of the losses against the US dollar that have seen the pound fall to a 13-month low as markets feared political uncertainty following the UK’s first hung parliament since 1974. There are concerns (as there always are with coalitions) that the deep rooted ideological differences between the two parties will lead to the dissolution of any agreement. However, with a rumoured 4 year ‘no-compete’ clause (i.e. an agreement from the Lib Dems that they will not vote against the Conservatives for 4 years) and the galvanising effect that tackling a record UK deficit will have, there is potential for this coalition to work. Although we shall have to wait and see, the initial reaction from the financial markets is good. The pound jumped to 1.18/ £1 and $1.49/ £1 on David Cameron’s appointment. What is next? The focus will now shift to the Conservative ‘emergency budget’ which is expected within 50 days and will outline the details of how the new government intend to deliver spending cuts of £6bn as a ‘down payment’ on the deficit within a year. Sterling was also boosted by unexpectedly strong manufacturing data. Out today we have unemployment data for the UK and the Bank of England’s inflation report. Call in now to take advantage of today’s jump in the value of sterling as it may not last long.

In the USA, the major driving factor behind the US dollar movement against the pound was the UK election. As a degree of certainty returned, the pound strengthened against the US dollar. In other news, the investment bank Morgan Stanley is likely to come under investigation for securities fraud in a similar vein to Goldman Sachs did recently. This could cause uncertainty on Wall Street – get in touch now for a live exchange rate.

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