httpvh://www.youtube.com/watch?v=BF1dWWhHUw8

·         GBP loses 4 cents vs USD in 2 hours

·         Prudential/AIG deal seen as catalyst alongside election fears

·         RBA hikes interest rates to 4%

All this and more is available on our blog. Click here  http://www.worldfirst.com/blog

Sterling endured its worst day in the markets in over a year yesterday as a multitude of pressures came to bear.

Any of you who have read a morning update, attended a webinar or spoken to me on the phone or in person since the beginning of the year have heard me bang on about the risk the election holds to the pound. The news that the Conservative party’s lead had fallen to 2 points gave the markets no comfort at all and the pound started to tank.

We had some very large M&A news yesterday which was great if you were bullish equities or risk in general, not for the pound however. Prudential, the UK insurer, agreed to buy AIG’s Asian operations for $35.5bn. Although the cash call is not due until April/May time their liabilities needed to be hedged especially with GBP/USD already heading south. Hedge funds decided to bet on Prudential hedging and driving the price lower. Prudential, then apparently, jumped into the market to buy dollars further pushing the price lower. In the space of 2 hours sterling lost just over 4 cents against the US dollar.

While the pound was able to fight back in the afternoon session there was no meaningful advance. It seems unlikely that unless we see the Conservative party jump back into a meaningful lead in the polls that the market is likely to back sterling prior to the election.

No such problems for the guys down under as the RBA continues to push the recovery forward. The Reserve Bank of Australia voted to pump their reserve rate to 4%, an increase of 0.25%. AUD is roughly unchanged against the majors.

Data was not much better; the global manufacturing sector posted its first regression since December 2008. This points to businesses no longer restocking and inventories sitting at high levels. If this persists it could be the first step into a double-dip recession.

There are few economic releases today (UK construction PMI 09.30, EU ‘flash’ CPI 10.00) and so sentiment is the likely captain today. The pound is still in the crosshairs and will likely come under more pressure today.