Pound Sterling (GBP) Exchange Rate Weaker ? UK Election Drives Currency Movement

Before markets closed for the Easter break, the Pound declined against a number of its currency counterparts. The GBP/EUR exchange rate shed 1% to trade in the region of 1.3638 while the GBP/NZD exchange rate fell by -0.6% on the day’s opening levels. Part of the reason for Sterling’s softness was the UK’s sub-par Construction PMI. The gauge declined by more-than-anticipated in March, but Markit economist Tim Moore did note; ‘UK construction output growth has settled in at a strong pace so far in 2015, although the recovery has lost some of its swagger since last year [...] However, UK construction companies are highly upbeat about their prospects for growth over the course of the next 12 months, helped by improving economic fundamentals, strong order books and a healthy pool of new invitations to tender.’

The main reason for the recent Pound’s lacklustre performance is concerns relating to the upcoming UK election sapping appetite. As it stands, no one party is garnering enough support to govern the country alone, and the prospect of a hung parliament is a scary one. Investors are consequently ditching the British asset as the May election draws ever closer. However, the GBP/USD currency pair was able to trade in a narrow range ahead of the publication of the US Non-Farm Payrolls report, with the ‘Greenback’ failing to see much benefit from a set of stronger-than-expected domestic ecostats on Thursday. The US Initial Jobless/Continuing Claims/Factory Orders/Trade Balance reports all improved on initial estimates, but with tomorrow’s NFP not expected to show a marked improvement in the US labour market, the US Dollar was fairly static after the figures were published.

Pound movement will be limited on Friday and Monday as markets close for the four-day Easter break. However, volatility could be occasioned over the rest of next week as the Bank of England delivers its latest interest rate announcement and the UK publishes Markit’s Services PMI.