The pre election worm has turned

1 May, 2015

Tom Arnold

As we start a new month, but come to the end of the week, it appears that the worm has finally turned for Sterling ahead of next week’s election. Many market watchers had been surprised by the Pound’s recent resilience given the huge amount of uncertainty that the election is throwing out, but this now seems to have come to an end with Sterling starting what could be a pretty large slide, most notably against the Euro, where we have lost three cents in just two days.

The UK’s situation has not been helped by some slightly softer data, than that which we have come to expect recently, highlighted by the lower than anticipated GDP figure released earlier this week. 0.3% is still growth, but it is not very much growth, and while it could be revised up in the coming couple of months, it very clearly shows a slowdown in the UK economy.

In the US, we also saw a lower than anticipated GDP figure and this was serious enough that the FED were forced to change their interest rate outlook from a probably rise in June, to a rise in Autumn at the earliest. The Dollar weakened, and is in fact one of the few positives in terms of Sterling exchange rates, with buying Dollar rates close to the best levels for a couple of months. But critically a cent or so lower than they were just two days ago, so even here the pre-election rot is kicking in.

The big winner has been the Euro though. The Greek situation is still undoubtedly a burden to the single currency, but away from that things appear to be picking up. A great example of this is the surprise jump in GDP in Spain to 0.9%. Spain was one of the Eurozone economies that was causing most concern following the recent economic crisis, but things are on the mend, and this is seemingly the picture across the bloc. Some cynics point out that this is only to be expected given the huge amounts of liquidity that the ECB is pouring in via its QE program, but even if this is the case, the growth is real and the Euro is taking advantage.

Today is a relatively quiet day with many countries around the world, Europe included, taking a break for Labour day. In the UK we do have some data this morning, most notably Manufacturing PMI, and there are some releases in the US this afternoon, including their manufacturing PMI and a speech from one of the FOMC members.

For those with a currency requirement coming up, it would seem that if you have Pounds in your pocket, then you might want to be considering relieving yourself of them as quickly as possible, before rates drop away further, and on the flip side of this if you are looking to buy Pounds, recent months of frustration could be about to bare some fruit with a strong Pound finally faltering with the election less than a week away.