by Jon Beddell
Foreign Currency Market Update – Sterling / UAE Dirham
This dollar pegged unit took advantage of sterling’s grotesque bout of weakness on Monday in the foreign currency markets, allowing the exchange rate to slide as low as 5.45 before a partial recovery set in. It was a weekend poll showing a high probability of a hung parliament that set the scene for things to come; markets do not like uncertainty, and at the moment the outcome of this election is as certain as a coin toss! 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.
Since Monday’s lows we have spent two days in a consolidation phase, but ominously for sterling we are struggling to regain lost ground. Many investors are now wondering whether this is the start of a currency crisis. While it’s probably too early to say that just now, the pound does look weak and highly vulnerable to further falls. The next noteworthy support is around 5.30. Buyers of the dirham should strongly consider hedging at least hald of any exposure at current levels.
