ODL Markets

April 15, 2010 02:30 ET

How the UK Elections May Affect Sterling and the Forex Markets-ODL Markets

LONDON, UNITED KINGDOM--(Marketwire - April 15, 2010) -

What will be the future for sterling in a hung parliament?

As we approach the 6th of May, currency trading markets and much of the community using the top trading platforms such as MetaTrader are focusing on Britain's battered economy and the difficult decisions to be made on economic policy and legislative reform as a key indicator for sterling's future performance.

With the polls predicting that there may not be a next clear majority win, the big debate over the next month will be whether the next Government will have enough of a working majority necessary to make cuts to the current UK sovereign debt.

Uncertain times make an uncertain market…

The last time Britain had a hung parliament was the period after the 1974 general election and as the possibility of another looms, the market suffers from uncertainty. If we do see a hung parliament, the practical consequence is that no single party would have control over economic policy and with such contrasting views on spending and cost saving between the three main parties, many analysts are expecting greater volatility in the forex markets over the coming weeks as the election looms.

Similarly, the UK is not used to having a coalition government and the risk is that in such an eventuality it could also delay some of the urgently required changes to economic policy after the elections. Recently it has been reported that S&P has given indications that it may cut the UK's enviable AAA rating unless significant cuts are made to the country's deficit after the election. If the UK did suffer a downgrading of its credit rating then it could result in a weaker sterling rate and also could see a reduction of overseas investment within the country.

We need look no further than Iceland and its ruined economy to see the long terms effects that credit downgrades can have on an economy. It is therefore little surprise that the potential of losing the ratings top spot has the city nervous not to mention the public in general.

So what now for Sterling?

All the financial markets have endured a volatile eighteen months, and currency traders are no different. Whilst it may have been the Euro that has been firmly in the spotlight over the past few months due to the fiscal issues in Greece, Sterling has had its own roller coaster ride.

Trading at $1.60 against the dollar at the turn of the year, it fell all the way down to $1.48 as traders picked fault with UK PLC. Over the past few weeks though, as economic data has shown that the global economy may well have seen the worst, cable has ticked back up to $1.54, but we are now at a pivotal period. Is the UK currency being pushed up due to external factors, or will any perceived weakness of the UK economy mean that this rally is a blip in longer term downward trend? Will the uncertainty over a potential hung parliament halt the move north?

Further Market News from ODL:

www.odlmarkets.com/resources/free-market-news.odl

www.odlmarkets.com

View the latest live currency rates on our MetaTrader 4 demo platform. http://www.odlmarkets.com/promotions/mt4-demo-download.odl

Dates to watch out for:

Wednesday Apr 21
Public Sector Net Borrowing Requirement
and Jobless claims
Thursday Apr 22
Mortgage Approvals
Friday Apr 23
UK GDP

Notes to Editors:

ODL Markets is a trading name of ODL Securities Limited which is authorised and regulated by the Financial Services Authority – Registration number 171487

Member of the London Stock Exchange and NYSE Euronext.

For additional information please contact Cathy Blackburn by emailing cblackburn@odls.com or calling +44 (0)207 903 6100. ODL Securities Ltd, 8th Floor, Northern & Shell Building, 10 Lower Thames Street, London, EC3R 6AD

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