Hung Parliament and Sterling

Capo Boi Image
04/23/2010 - 17:00

It seems that the conventional wisdom that sterling would collapse on a hung parliament is being turned on its head. Despite the increasing likelihood that no single UK party will gain an overall majority, sterling continues to rally, hitting €1.15 this week.



Conventional wisdom is indeed that the currency markets (in other words, the lads who gamble on exchange rate movements) don't like uncertainty and so the opinion polls in Britain should be making them bet on Sterling falling. I've been assuming that Greece admitting its fiscal problems has caused them to concentrate their attention on much larger prey. I've never understood how the common currency was supposed to work when there was no common fiscal policy, but I put that confusion down to me not being an economist and so pretty stupid when it comes to such complicated matters. On a purely selfish level, I'm pleased with how things are going for the Euro at the moment. It will be interesting to see which of the PIIGS the speculators go for next, how long the uncertainty lasts and how close we get to the supposedly unthinkable fantasy of one or more countries withdrawing from the Euro. Or perhaps my economic ignorance means I'm seriously underestimating the sophistication of the currency gamblers and the true cause of the recent Sterling-Euro movements is that the speculators don't see much difference in the economic prospects for Britain no matter which party (or parties) form the next government? Al

"The hole in the bottom of the euro sink is bigger than the hole in the bottom of the sterling sink - at the moment. Just beware that Oil is priced in dollars!!" But isn't the hole in the Dollar sink the biggest hole of all? Al