FX round-up: Election uncertainty weighs on sterling

LONDON (ShareCast) - Sterling finished the week lower on uncertainty ahead of the next elections and ahead of the Bank holiday. "Next (Other OTC: NXGPF - news) week's UK election remains exceptionally uncertain [...] Absent a very significant last-minute change, it looks like neither party will have a sufficient number of seats to form a majority after May 7th and a period of uncertainty will follow as parties endeavour to form a workable government," Deutsche Bank (Xetra: 514000 - news) explained to clients on Friday evening.

A weaker than expected reading on the state of UK manufacturing and a small bounce in the US dollar also contributed to the move.

Cable dropped 1.4% to hit 1.5135.

The relevant Markit (NasdaqGS: MRKT - news) purchasing managers' index (PMI) for the UK dropped to a reading of 51.9 in April from 54 in the prior month (consensus: 54.6).

"Today's figures highlight the increasing dependence of the UK's economic recovery on consumers", Capital Economics wrote in a research note e-mailed to clients in the wake of the above data.

"However, there were some better signs from the latest money and credit data. Annual growth rate in MPC (KOSDAQ: 050540.KQ - news) 's preferred measure of bank lending (M4 lending excluding intermediate OFCs and the effects of securitisations) picked up from 1.9% to 2.9% in March, a five-month high," the think-tank explained in another report sent on the same day.

Measures of volatility in sterling versus the single currency and US dollar were higher over the week keeping them close to the 2011 highs scaled in April.

The US dollar broke six day losing streak versus the euro, ending the day higher by 0.3% to 1.1186 and paring its weekly loss to 2.9%.

However, over the previous five trading days it accumulated a four per cent drop against the euro.

The US dollar index finished the week at 95.32, for a cumulative five-day loss of 1.7%.

The flow of economic data Stateside on Friday was somewhat mixed, with lower than expected readings for the ISM manufacturing PMI and University of Michigan consumer confidence.

The details of those two reports were more positive, if one looks at the new orders index contained in the ISM report and the rise in the expectations component of the consumer survey. Similarly, inflationary pressures as per the latest reading on the employment cost index surprised to the upside.

Nevertheless, ahead of the next monthly jobs report, which was scheduled for release on 8 May, some traders highlighted the weakness evident in the ISM employment sub-index and in the Conference Board's measure of the proportion of US consumers who judge that jobs are hard-to-get versus those who believe they are plentiful.