IFX Market Report

Sterling was under attack from all angles yesterday morning as traders and investors sold off the pound as if it was due to become worthless. Two main factors lead to sterling at one point approaching its biggest one day drop in over a year.
Firstly, a report over the weekend in the Sunday Times suggested the existing Government may win more seats in parliament even if the Conservative Party win more of the popular vote. The talk of a potential hung parliament returned to the forefront of trading floor gossip. With the election getting closer, the implications of a hung parliament would make it nearly impossible to pass controversial or unpopular plans to cut the ballooning budget deficit. Decisions that would usually have been decided during cabinet meetings could potentially take weeks, if not more, to pass through the House of Commons.
Secondly, UK insurance company Prudential PLC, have been linked to the purchase of part of US giant AIG’s business. The Asian insurance company AIG is reportedly going to be sold for a figure of around $35.5bn much of which is to be made of up of a cash transaction.This potentially enormous transaction worried investors as Prudential would have to sell pounds to fund the dollars needed to complete the purchase.
This lead to the pound falling below the key psychological level of $1.50 during the morning session and then in just a few minutes the pound lost almost 2.5 cents, falling to $1.4781.At 12.30pm it had made back some of the losses, trading 2.4% down on the day at $1.4885, steering it away from the biggest fall since February 2009.
Technical analysts said selling picked up after the pound made a decisive break of key support around $1.5270 late last week, around the 50 percent Fibonacci retracement of 2009 rally.
The euro made huge gains against the crippled pound as well, with GBPEUR falling to €1.0928, the lowest since early December.
Sterling hit a one-year low against the yen of 132.07 yen, while it posted its lowest rate in 25 years against the high-yielding Australian dollar Traders also dumped the pound after data showed a dip in UK mortgage approvals in January, even as mortgage lending and consumer credit rose.
UK manufacturing PMI showed the manufacturing sector expanded faster than expected last month but this was largely neglected.
Analysts said they expected sterling to stay under selling pressure against the euro, while acknowledging that euro gains may be limited by the single currency's weakness against the dollar due to ongoing concerns about Greece's debt problems.
Sterling continued its slide despite an upward revision to UK economic growth last week as concerns simmer about a tepid economic recovery, high public debt and political uncertainty.
Sentiment has also deteriorated in the last week after the Bank of England said it stood ready to return to its asset-buying scheme if economic conditions warranted. This has prompted speculators to dump the pound, with positioning figures late last week showing another hefty rise in bets that sterling will depreciate