Uk Politics And The Forex Markets

After having been under starters orders for what seems like months

, the UKs politicians are finally out of the stalls and racing for the finish line.

It was interesting to look at the forex markets when the, rather expected, news unfolded. The Pound suffered and the Sterling/Dollar rate dropped when investors saw Gordon Brown walk out of Number 10 to announce the election.

The sight of the Prime Minister brimming with confidence let a bit of fear creep in as the markets thought what if the Labour Party manage to make a comeback.

As Simon Denham of Tradefair recently said, Sterling fluctuations will, most likely, be influenced heavily by swings in the polls. Any indication of the Tories not winning will lead to further Sterling weakness.

When the Election-proper got underway all three leaders seemed to start with a sprint rather than pacing themselves as they vie for the right headlines. Although its early days, if the campaigns continue in the same vein then we will be in for many weeks of the same old rhetoric.

Labour will claim that they have dragged us out of recession and are therefore the best of a bad bunch to continue doing the job.

The Tories will sound like a broken record saying that they will bring change and attack Labours record for being in the driving seat when the UK suffered from one of the greatest recessions on record.

The Liberal Democrats will just try to get more people to recognise their leader.

The current merry dance is both amusing and worrying. All three parties are campaigning away very energetically. However it is a bit surprising that they can move at all as they ignore the elephant in the room.

The UKs fiscal position is actually worse than Greeces and yet we do not hear a single sensible policy idea as to how to solve it. All we get is some spin about efficiency savings and fiddling around with National Insurance.

Surely we all know that there are going to have to be heavy public expenditure cuts across the board. The experience of Ireland is probably the most relevant to this country, ie salary cuts for all.

But how to trade this in the markets? The FTSE 100 has reacted in places to news suggesting a hung parliament however the forex spread betting markets are the ones to watch.

A Tory win should theoretically give Sterling a boost. And as Simon Denham suggests, anything else looks like it will weaken the UK currency.

by: Robert Thomas

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