Pound follows election trail – UK exchange rate news

The Pound has seen something of a surge this week on the back of some positive economic data, with manufacturing output, producer inflation, house prices and car sales all up. At the same time, worries over the economic situation in Greece have contributed to a weaker Euro, giving the best sterling-euro exchange rate since February.

Yesterday the Bank of England did not pull any surprises in keeping the UK interest rate and quantitative easing policies on hold, and the ECB followed suit with a ‘no change’, so interest rates are unusually not causing huge movements in currency rates at the moment. One notable exception is in Australia, where this week interest rates were increased to 4.5%, causing further strength for the Aussie Dollar – not good news if you are emigrating and need to send a lump sum transfer to Australia.

For anybody who needs to transfer money overseas from the UK though, there is an underlying theme to the Pound’s fortunes. The start of the election campaign coinciding with some strength for sterling has not been entirely by chance. Since the prospects of a hung parliament surfaced in February, markets have been worried by the uncertainty which could be caused by the lack of direction if there is no clear winner for the first time since 1974, and confidence in GBP has fallen accordingly.

As the Conservatives’ lead had thinned, the Pound fell, and as the political gap has reopened in the last 2 weeks, the Pound has risen. A clear outcome from the election should lead to a stronger Pound and better exchange rates.

So whether you are buying Euros, Dollars or Dirhams, the rate you obtain for your transaction may well be heavily influenced by the relative fortunes of the political parties. Of course, economic data releases in the next few weeks at home and abroad will continue to have an influence, but in this election, the outcome might affect your exchange rate as much as your tax rate.

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