Sterling in Limbo as Traders Await Election Results

Sterling has approximately held the $1.52 to $1.55 range for the past month, as cable traders await the U.K. election on Thursday, May 6. The candidates to lead the country going forward are current Labour Prime Minister Gordon Brown, Conservative leader David Cameron, and Nick Clegg of the Liberal Democrats. Recent polling shows a close race between Brown’s Labor Party and Cameron’s Tories, although neither is likely to gain a governing majority. This would result in the first hung Parliament since 1974, requiring bipartisan support for any law to be passed.

The prospect of a hung parliament may have a negative impact on the U.K. currency, as investors lose confidence in the government’s ability to reduce the country’s budget deficit under such circumstances. The deficit-hawk Conservative Party, the favorites to gain a plurality in Parliament, will have more difficulty enacting their proposed 6 billion pounds of budget cuts if bipartisan support is required. Prime Minister Brown, for example, has stated his opposition to the Conservatives and says that their proposed fiscal cuts could lead to a double-dip recession. Conservative leader Cameron realizes the potential paralysis that could result from a hung Parliament due to “bickering, arguing, drift, dither.” He says that such a circumstance would make it harder to reign in the country’s budget deficit that sits above 11 percent of GDP, rivaling that of Greece.