Word: monday
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There's pressure on sterling from all sides. The currency fell below $1.50 for the first time in 10 months on Monday after an opinion poll published in a British newspaper suggested that none of the parties contesting the country's upcoming general election would emerge with overall control. A so-called hung parliament, investors deduced, would not likely result in a clear plan to tackle the country's dreadful public finances. (See pictures of the financial crisis in London...
Also a factor in Monday's slide: plans announced by Prudential, a British insurer, to buy the Asian operations of AIG for an eye-popping $35 billion. Much of that would be paid in cash, Prudential said, which would mean swapping huge piles of sterling for dollars. Toss in the relentless pressure from speculators betting on a falling pound, as well as Britain's generally horrible fiscal position, and "sterling has sailed into a perfect storm of negativity," Nick Beecroft, a senior foreign exchange consultant at Saxo Bank, wrote in a research note earlier this week...
...with intensified concerns about hung parliaments, as was reported widely in the British press, says Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole in London. In some ways, that's encouraging. If a single opinion poll was able to trigger the kind of slump seen Monday - in a volatile day of trading, sterling eventually closed 1.7% down on the dollar - an actual hung parliament might be expected to cause the venerable currency to collapse. And while it's true that speculators are adding to the pressure on sterling - the value of short positions on the pound...
...also helps explain why sterling has stabilized since the steep fall on Monday. The pound actually rose slightly against the dollar on Wednesday amid reports the Prudential deal was floundering and the release of data showing a rise in U.K. consumer confidence last month...
...That goes for military deals. On Monday, Sarkozy confirmed that France was negotiating with Russia over the sale of four Mistral-class assault ships worth a total of about $2 billion - the first deal of its kind between a NATO member and Moscow. It's turning heads for other reasons too. A Russian admiral recently said the amphibious vessels - which can carry 15 helicopters or 70 armored vehicles - would have allowed Russia to complete its August 2008 invasion of Georgia in a matter of hours. Little wonder, then, that the deal has prompted deep concern among American defense officials...