This week the city has been accused of artificially suppressing the value of the pound in a bid to express it’s displeasure over the increasing probability of a hung parliament. Although a hung parliament would not be disastrous, it is clear that the hedge funds and money market managers do not want to see another Labour government, and although they owe their existence to Gordon Brown’s years as chancellor, the value of sterling has definitely taken a beating as a result of his premiership.
The pound was heavily sold over last weekend, and uncertainty pushed it as low as 1.0925 on Monday, however the rate has, rather like the UK economy, gradually crawled up to 1.11 at the close of the European markets on Friday. The narrowing of the UK opinion poles, a back lash over the status of the Conservative peer Lord Ashcroft and the realization that the euro currency itself has emerged as something of an anchor for the Eurozone in terms of stability, has lead to a great deal of pressure on the pound.
Rates were held by the MPC this week, and there is no consensus over when they are likely to rise which has enhanced the appeal of European assets for foreign investors. The question of inflation and the Bank of England’s governor’s assurances that it will cool off may seem to be low on the MPS’s list of priorities but the Producer Price Index indicated a slow in price inflation. The survey monitors the change in the price of goods and raw materials purchased by manufacturers and is a leading indicator of consumer inflation because manufacturers pass on higher costs to the consumer. On Friday the PPI showed 0.1% price growth as opposed to a previous level of 1.3%.
Report by Currencies Direct.
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