A resigning Prime Minister and a new coalition government hasn't yet steadied the pound. What a week! here it is reviewed!

Monday

The UK sits in limbo following the hung Parliament result last week, although Nick Clegg of the Liberal Democrats has suggested that negotiations will result in a deal by the end of the day. This is believed to be some form of Liberal Democrat pact to support the Conservative minority although as yet nothing is certain.

A speedy deal is hoped for by city markets as any lengthened uncertainty could affect markets and certainly the Pound. So far, the election impact has been less than some feared. Although the Pound fell sharply against the Dollar on the day of election, it has since begun to rise in response to party negotiations and the fact that the parties have made a point that reducing the budget deficit will be the over-riding priority of any coalition.

The situation in Europe is still thought to be dominating the GBP / EUR rate; the Pound has slipped against the Euro this morning following news of an unprecedented lending plan for European Governments which has stirred up confidence in the Euro.

Tuesday

Sterling fell by more than a cent against the Dollar in the two minutes immediately following Gordon Brown’s resignation yesterday evening. The resignation has been seen as a manoeuvre in courting the Liberal Democrats and has re-opened speculation that a coalition could be formed by either Labour or the Conservatives with the Liberal Democrats. A quick decision creating a clear majority with a clear ability to cut the deficit is what markets believe is needed to ensure the strength of the Pound.

Despite the ongoing election aftermath, the Pound is making gains on the Euro. In tune with trends of the last few weeks, this is due to the volatility in the Euro rather than the state of the Pound – the most recent shift mirrors short-lived confidence in the latest European rescue package to sufficiently curb the Euro-zone crisis.

Wednesday

Investors have been keen for the last few days’ uncertainty hanging over the future of the UK Government to end. Markets have suggested that the Pound would strengthen if investors felt that a strong Government was formed who had the Parliamentary ability to pass measures to cut the UK budget deficit.

There was an immediate rise in the Pound yesterday evening following the announcement that a Conservative-Lib Dem decision had been reached. However the movements so far today, (particularly the Pound losing ground against the Dollar) suggest that investors are as yet not over-confident in the easy workings of the coalition to meet their budget cut pledges.

Part of the coalition agreement is that Britain will not join the Euro.

David Cameron’s first day at 10 Downing Street has seen a release of poor jobless data figures this morning – unemployment rose by the highest level for fifteen years in the first quarter. The Bank of England's quarterly inflation report is also due today.

Deep-set weakness in the Euro means that the GBP / EUR rate is still at a very high rate, trading at 1.17805 at 10.30am.

Thursday

Following  investor speculation, the Pound today appears to have continued its steady improvement against the USD. This is on the back of expected cuts in public debt.  However, David Cameron was on-hand to point-out that we are still in the ‘honeymoon period’, having just formed a new government, and that we must be cautious.  The Pound had recently suffered due to governmental uncertainty so it is natural that now a new government has been formed this issue should have eased slightly.

Although figures released today show that consumer confidence had increased slightly in April, expected fiscal tightening may well cancel this out over the next 6 months.

GBP/EUR rates remained favourable and although we are no longer at the one year high of last Friday, as of GMT 09:15 the rate was 1.17440.

Be aware that even if the Pound may have somewhat steadied, we are still in unpredictable times.

Friday

David Cameron’s newly formed Cabinet has met for their first cabinet meeting. Chancellor George Osborne has made it clear that the Liberal-Conservative cabinet will have to make cutting the deficit an absolute priority and that there may be some difficult times ahead. The new Cabinet has some disappointing figures to deal with straight away.

The expectation that the decline in the Pound would drive up UK exports has not been realised as yesterday the Office for National Statistics released new trade deficit figures. The value of imports exceeded exports by £3.7 billion (up from £2.2 billion in February). Events in the Eurozone may have negatively affected UK based exporters.

The Pound fell by nearly two cents against the Dollar (the lowest in a year), a cent against the Euro and made losses against other currencies such as the Japanese Yen. It has begun to rise again against the Euro so far this morning.

Nigel Hodges www.currencysolutions.com