Polls apart
An overnight poll from YouGov which shows the Sunday Times report of a dramatic narrowing of the Conservative lead appearing to be a blip, in conjunction with the culmination of a very large GBP sell order yesterday appears to have returned some stability to GBP today after what has been a very dramatic drop in the value of GBP over the past couple of days.
The opinion polls will continue to play a large role in the fortunes of GBP as we move towards the General Election. The market very much fears the prospect of a hung parliament and the constraints that this may place on the eventual (coalition) government to push through fiscal reform and deficit reduction plans. Whilst the reality is unlikely to be as negative as the concern, GBP will continue to remain vulnerable to this potential outcome.
The data calendar is fairly light today but the two important features are rate setting meetings from the RBA, who raised Australian interest rates by 25bps to 4.00% overnight and the Bank of Canada rate decision later today. Whilst the Canadians are expected to leave rates unchanged at 0.25%, the market will be keenly focussed on any concession to the firm message that we have become accustomed to that rates will remain on hold until the end of Q2.
The RBA, in raising rates, suggested that the move was another step towards the normalisation of monetary policy towards its long run average. They stated clearly their belief that the jobless rate appears to have peaked and that growth in Asia continues to be quite strong. As a result of this and significant house price rises over the past year they saw the rate rise as appropriate. Markets continue to expect further rate rises from the RBA as the global recovery gathers strength.
Switzerland released its Q4 GDP figures today, firmly beating expectations to record a +0.7%q/q growth rate in Q4 in addition to an upward revision to Q3. This has given another boost to the CHF after Warren Buffett commented yesterday that if he had to switch all of his money out of the USD he would probably opt for the CHF at the current juncture. I’m not sure I agree with that myself as I see GBP as far more attractive in the medium term than the current level of CHF.
Tomorrow sees the release of the service sector data across Europe, the UK and the US. With the domination of the service sector in the make-up of UK GDP, strength in this index is likely to firm the support under GBP after the turmoil of the last couple of days.