Politics may hinder the growth of a pound

Column Dow Jones Newswires, author Nicholas Hastings

LONDON / DJ FOREX / - Some expect significant growth in the pound sterling as a more bellicose comments Bank of England have coincided with the resumption of bidding for the difference in the levels of interest rates. Rather than unsuccessfully to storm the 1.90 dollar mark, as in the past few months, can pound it is stronger around this level. "I expect growth to £ 1,9350-1,94 dollar", - said Hans Redeker, Director of currency strategy at BNP Paribas bank.

Less conservative players, who dream of even greater growth in the pound, again talking about the dollar rate of 2000 per pound. Of course, political events may be long postponed such optimistic talk. Since the ruling Labor Party loses its leading position, market participants are selling pounds, for the first time confronted with the risk of the Conservative Party victory in elections on May 5 or the division in the parliament.

For the pound, both of these possibilities are not positive. Traditionally, it is believed that the Conservatives to improve the economy of the UK. But the party has been in power since 1997, so her victory - more uncertainty than another victory for Labor.

The alternative - the election without clear winner - it may be even worse.
"A set of actions and compromise in the policy can be costly pound," - says Steve Barrow, chief currency strategist, analyst at Bear Stearns International in London. Of course, there is a third option. According to polls, demonstrated the benefits of 3% on Monday, and 2% on Thursday, the Labor Party could lose, and to postpone the election until the end of its term of office in Parliament in June next year.

"We believe that there are reasons for concern in the next month or two," - said Barrow, noting that although the weak dollar and the pound may help to build up to 2000 dollars by mid-year, the behavior of the pound to the Euro or the yen may be complicated by political concerns .

Three of the nine members of the monetary policy of the Bank of England this week made it clear that the preferred preventive raising interest rates to prevent inflation spiral out of control. From an article by Kate Barker, published earlier this week, that interest rates may begin to grow again. Minutes of the last meeting of the monetary policy showed that Paul Tucker voted in favor of higher interest rates, while the remaining members of the committee voted to leave them unchanged. On Thursday the Bank of England Deputy Governor Rachel Lomaks stated that the actions of the bank must be "preventive", but the bank is torn between this approach and the desire to see how risks will evolve. By the time of the publication of her speech, futures are already sensitive to the price of yet another increase in interest rates by 25 basis points by June, but many analysts believed that the increase could happen as early as March.

"The likelihood of unexpected increases in interest rates by 25 basis points on March 10 is 1 in 4", - said Alan Castle, economist of Lehman Brothers in London. So the pound is now attracting more attention than the dollar because interest rates in Britain are already equal to 4.75%, respectively, denominated in pounds profitable assets of many others.

Bank of Korea earlier this week expressed a desire to diversify foreign exchange reserves, said on Thursday that will consider the purchase of other currencies in the future, including the pound.