The currency blog

Disastrous start for the pound in the FX markets continuing the bearish trend witnessed last week. The pound has dropped to a near 3 month low against the euro, a 10 month low against the USD and a near year low against the JPY. The UK is under heavy selling pressure with unwanted attention and unease with the fiscal deficit combined with further indications that the general election will result in a hung parliament. A hung parliament would severely limit the ability of a divided parliament to act decisively on the UK’s deficit spelling danger for sterling. In addition to this the potential purchase of the Asian life insurance unit of AIG from Prudential is causing large negative M&A flows out of sterling and into the USD.  So all in all not a bright picture for the pound which is looking alarmingly fragile and dropping sharply.

Lots on the table this week for economic data with interest rate decisions in Australia, UK, Canada and Europe- the expectation is for another rise in Australia of 25 basis points. We will also have feedback from all major economies in relation to PMI data which will give a good gauge on the services and manufacturing sectors.

The Greece situation is still ongoing- a few rumblings of solutions have dissolved into nothing leaving the markets still uncertain and leaning to the safe havens of the USD, JPY and AUD performing well on the hint of another rate rise.

Discuss on this on the Currency Exchange Forum