Are pre-election ‘jitters’ set to hit sterling?

Looking at exchange rate moves so far in 2015, sterling has very much been in the middle of the pack. In the first quarter it declined against the Swiss franc, US dollar, Japanese yen and New Zealand dollar (by between 2% and 8%), but it posted similar sized gains against the Australian dollar and other European currencies. So there was little evidence of ‘election jitters’. But since the end of March sterling has shown a greater propensity to decline against most of the main currencies, so perhaps investor nervousness is intensifying. As 7 May approaches we could reasonably expect more volatility, and sterling rather than short-dated Gilts is likely to feel the heat despite its recent declines. Rate rises earlier than the market expects could be supportive of the currency later in the year, but for now we have slightly increased non-sterling (ie US dollar) exposure.

Howard Cunningham – Newton, A BNY Mellon company

 

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