Sterling down over hung parliament worries

The attractiveness of sterling as an investment for those with high levels of personal wealth has been reduced after the currency’s value took a hit on forex trading.

Yesterday (March 1st), the pound fell below $1.50 against the dollar for the first time in nearly a year due to worries that the forthcoming general election could result in a hung parliament.

These concerns were raised after new opinion polls showed that the Conservative Party’s lead over Labour has been cut, increasing the possibility that a parliament may be created where no party holds the majority of seats.

According to the Times, sterling fell to as low as $1.4784 before rebounding slightly and one trader at a European bank told Reuters that it is unlikely the pound - or the euro - will recover in the near future.

The unnamed individual remarked: ’Overall, there is still likely to be selling pressure against the European currencies.’

However, the FTSE 100 has recorded gains this morning despite sterling’s weakness and was up 0.42 per cent to 5,428.67 points at 11:32 GMT, Reuters reports.

Jeremy Beckwith, Chief Investment Officer at Kleinwort Benson, said ’In addition to concerns about a Hung Parliament the currency markets are reacting to the announcement from Prudential yesterday that they intend to purchase AIG Asia, this involves some $23 bn of cash to be used. The money will be paid in dollars but will be raised in sterling from a rights issue and existing holdings. This is a very large currency transaction and even though it will not take place for some time concern has been reflected in this fall of sterling.’ADNFCR-2318-ID-19645203-ADNFCR