Welcome back to our regular report on how the British pound has been performing on the currency markets. If you had your currency converter handy at the end of last week, you might have thought the figures were incorrect. Following the hung parliament result in the UK, the pound plummeted on Friday evening to a point where we knew it would have a task to climb back up again.
But now we are looking at the first two days of the new week. A few hours before this article was written, it was announced that the UK would now have a new Prime Minister in the shape of the Conservative’s David Cameron. But would this result – announced as it was later into the evening – have an effect on how the markets ended on Tuesday night?
Before we see how things panned out on that day, let’s see where we were left after the second half of last week. We had two results that actually weren’t too bad, even though we experienced losses across the board. We were down by just over half a cent against the Euro and a total of 0.0032 against the Aussie dollar.
We also experienced a poor result against the Hong Kong dollar, as the pound slipped by 0.349 over those last three days of the week. But the worst results were saved for the US dollar and the New Zealand dollar. With both of these currencies the pound could do nothing but lose nearly five cents against each of them. This left us feeling vulnerable as we went into the weekend not knowing who would be our next Prime Minister.
So let’s see whether Tuesday’s announcement happened soon enough to make a difference this early in the week.
An overview of the currency markets for May 10th – May 11th 2010
Let’s go to see how the British pound started the week against the US dollar first of all. It had a lowly starting position of just 1.4683, which meant that we had some making up to do when the markets opened for the week.
And perhaps against all odds, we did have one of the best starts to the week that we could have hoped for. By the close of play on Monday the exchange rate stood at a much healthier 1.5009, tipping us just over the $1.50 mark once again.
But it didn’t last long. The following day we saw the pound drop back down to 1.4771, although even with that loss we still managed to add on 0.0088 over the course of the first two days of the week.
The closing rate last week with the Euro was 1.1520, after a small loss of just over half a Euro cent here. But once again the pound got off to a reasonable start, although not as successfully as it had against the US dollar. Here we added on a small amount to reach the total of 1.1573 by the end of the day.
But we did not dip back again on Tuesday as we had previously. Instead we managed to increase our standing to 1.1633, meaning that the British pound had improved its exchange rate by over one Euro cent in two days.
Let’s move on to the Hong Kong dollar now, where we last left things on 11.423. And once again here we got off to a great start, improving the exchange rate to 11.675 by Monday evening. We did have the same slip back on Tuesday though – perhaps as a result of the increased speculation around the fate of the British government. In any event we finished up on 11.494 at the end of the day, which meant we had increased our standing by 0.071.
Now let’s see whether we could repair the damage done in our position with the New Zealand dollar. Here we lost a whopping five cents towards the end of last week, so we were eager to try and add some of that back on. But was it too soon to expect such a result?
Our starting point was 2.0582, and by the time Monday’s markets closed we were on 2.0656. It was an improvement, but we would have been delighted with more. And we actually lost ground again by the end of Tuesday, slipping back to 2.0620 in the process. We had still added on nearly half a cent in those first two days of the week though.
Finally we should take a look at the state of play with the Australian dollar. Our starting rate is 1.6525, and once again we saw a rise on Monday which left us on 1.6562 at the end of the day. But we couldn’t sustain this and by Tuesday night we had slipped back to 1.6519. This meant we had lost the tiny amount of 0.0006 in those two days.
It was an interesting start to the week to be sure, but how will it end?
Notable events in the world of currency
The pound against the Canadian dollar
There was another fall in store for the pound against the Canadian currency to start the week; the currency fell from 1.5239 to 1.5159.
The pound against the Swiss currency
There was another story in play with these two currencies though, as the British pound managed to climb from 1.6293 to 1.6397.
The pound against the Japanese yen
The pound managed another good climb from 135.752 to 136.551 against the Japanese yen. But it would have been better had it managed to hang onto the rate of 140.003 it gained on Monday night.
So we can see that the election in the UK has had a marked effect on its currency. And this was borne out in one of the stories released on the Reuters website, written before the historic deal between the Conservatives and the Liberal Democrats actually took place. It also occurred before PM Gordon Brown finally resigned.
It will be interesting to see how the pound does from here on in, as we go into the second half of the week with a new government – a coalition government – falling into place. We will be here to keep watch.
I can’t say I am surprised that the pound has had such a bad week. Everyone seemed to think the pound would do better once we had a new government in place. But sometimes it can take a while for such changes to really take effect.
In addition to this the UK government is now a coalition for the first time in something like seventy years. This is going to make people jittery and while I think it could be a good thing in the long run, I can understand why other people would be nervous about it. Until the first few weeks are underway and we can see how the whole thing will pan out, I don’t think the pound will improve any time soon.
I have a great interest in the Forex markets, so I love reading these weekly reports on how the various major currencies are doing on the currency markets. But having said that, I must admit I wouldn’t have the nerve to bet for or against the pound at the moment. I know it has had a good start to the week on this occasion, but somehow I don’t think it is going to continue. I haven’t had a chance to read this week’s latest report yet, but I’m going to head over to that page in a minute to see if I am right.
The new government is not immediately going to foster trust and a sense of relief, this much is true. It will have to prove itself first.
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