Yesterday was a sad day for the British Pound as it dropped to a 9 months low against the dollar and a 1 year low against the Yen.
The main reason is the growing deficit of the British economy and a recent opinion poll of British voters which returned inconclusive results for the upcoming election.
After long years of Labour Party rule, the Conservative Party leader, David Cameron, appeared to be headed for a certain victory in the forthcoming elections which are to be held at the end of May.
The economic situation, the continued war in Iraq (where British forces are still deployed), and various scandals cut away at the support Labour enjoyed over the past decade and marked a return of the Conservative Party to power. However, the recent poll showed that this was far from a certain victory.
Cameron, whose position on spending and the growing deficit shows promise of a more business oriented policy, has lost ground and is now holding on to a meagre 2% lead in the polls. This is well within the statistical margin of error so there is a very good chance that the Labour Party may yet prevail and remain in power.
Should this happen, there may be more asset buying by the government and an even greater deficit, which does not bode well for the Pound.
In any event, it seems that the elections will be a close affair with neither party being able to achieve a forceful majority in Parliament. A minority government (that has not been in Britain since 1974) is unlikely to be able to take the swift and unpopular financial steps that many traders view as necessary to reinforce the economy and bolster the Pound.
This is why the Pound went into a free fall yesterday and why its future remains bleak. All this plays in favor of the USD which is enjoying a nice upward trend over the past few months against the GBP and the Euro.
