Sterling shows its vulnerable side amid political uncertainty

Sterling held steady after the Bank of England conformed to market expectations and announced their decision to keep interest rates unchanged at 0.5% this lunchtime.

After the sharp move lower amid rumours about the resignation of Gordon Brown, HiFX says that Sterling is likely to remain incredibly volatile and vulnerable due to a drop in confidence.

Marc Cogliatti, currency strategist at HiFX, explains "By keeping interest rates unchanged and not increasing the quantitative easing programme, the MPC has added to the drip feed of encouraging news from the UK services, manufacturing and housing sectors, which has helped maintain demand for Sterling. In the past week we have seen a six month high against the Euro (GBP/EUR 1.1661) and an eight month high against the Dollar (GBP/USD 1.6661).

"The interest rate announcement today was overshadowed by rumours that Gordon Brown was set to resign as UK Prime Minister, prompting Sterling to tumble against both the Dollar (GBP/USD 1.6360 to 1.6100) and the Euro (GBP/EUR 1.1600 to 1.1425). However, Downing Street confirmed the rumours were ‘utter nonsense' which has helped stabilise the Pound once more.

"It remains to be seen whether or not we see a weekly (Friday) close for GBP/EUR above 1.16. If we do, the whole pattern since the start of the year takes on a more positive slant and the speculative FX market is likely to be encouraged to buy more Sterling in coming months. However for the time being, the political landscape amid the green shoots is holding Sterling back."