Forex Markets


Pound hits nine-month low

Pound slumps on hung parliament fears

Pound slumps on hung parliament fears

The pound hit a nine-month low against the dollar as fears over a hung parliament sparked a sterling sell-off.

The currency fell sharply to as low as 1.478 against the greenback as well as slumping below 1.10 against the euro.

Pressure on the pound comes as the Conservatives' poll lead against Labour narrows - threatening an indecisive general election result when markets want firm action to sort out the UK's dire public finances.

Mark O'Sullivan, director of dealing at foreign exchange firm Currencies Direct, said: "Until the political situation in the UK becomes clearer, sterling will remain very, very vulnerable."

The sudden plummet from 1.52 to below 1.48 is the pound's biggest one-day fall since January last year, according to Chris Turner, head of FX Strategy at ING Commercial Banking.

He warned: "While UK policymakers may have quietly welcomed the pound's recent weakness, they will not appreciate the kind of fast markets that can see a 'sell UK' mentality developing."

Sterling has lost nearly 10 cents against the dollar in little more than a week - hitting holidaymakers in the pocket, putting upward pressure on petrol pump prices and adding to import costs for businesses.

The pound hit a 24-year low of 1.35 dollars last year in the worst depths of the recession.

Other factors weighing on sterling included Prudential's 35.5 billion US dollar (£23.5 billion) mega-deal for AIG's Asian business, amid worries over potential heavy selling of pounds to buy dollars to complete the deal.

Comments from several members of the Bank of England's rate-setting committee that more quantitative easing - creating electronic money - could be needed to shore up a fragile recovery have also put pressure on the pound.