by Jon Beddell
Foreign Currency Market Update – Sterling / Canadian Dollar
Sterling had already broken the key support at 1.6250 last week (this was the October low) and then made a failed attempt to break back above that level at the end of the week in the foreign exchange markets. Things got dramatically worse on Monday as traders pointed to a myriad of factors that all added up to send sterling sharply lower, losing over four cents on the day. It was a weekend poll showing a high probability of a hung parliament that set the scene for things to come. Another contributor was Prudential’s announcement that it will purchase AIG’s Asian life insurance business. That will require the sale of a large amount of sterling to fund the $35bn price tag, most of which is to be paid in cash. Markets were also spooked by news items concerning Iran’s failure to cooperate with nuclear watchdogs the IAEA. Given the negative sentiment surrounding the pound at present, any one of these stories could have caused the sell off.
The Canadian dollar remained firm, helped by a firm US currency and buoyant commodity prices. Since posting a low of 1.5400 on Monday we’ve spent two days consolidating close to this low. In fact, the market is showing so little “bounce” after Monday’s dramatic slide that we are fearful of another imminent decline. Buyers of Canadian dollars should strongly consider covering at least half of any exposure now to reduce the risk of further downside.
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