httpvh://www.youtube.com/watch?v=6FqKHssP3uI

Last night saw one of the truly historic moments in British politics as a coalition between the Lib Dems and Conservatives came together to take power in the UK.

Once it became clear that the Labour party and Lib Dems were not going to strike a deal sterling rallied to its day’s highs of over 1.50 against the USD and close to 1.18 against the euro. Gordon Brown was left with little to do apart from resign.

There are very few jobs out there in which you lose your job live on TV. Gordon Brown handled his resignation with grace and I think the Labour party is now in a better place for it. This will allow them to come back stronger for the next election as the likelihood is the Lib Dems have lost a sizeable amount of grass-roots support in anger at this tie-up.

Details of the coalition agreements from a economic standpoint seem to include the ‘emergency budget’ due in 50 days as well as the £6bn cuts to non-frontline services in 2010/11. They have also agreed to scrap the Trident nuclear missile system but only once a cost/benefit analysis has been undertaken. Further details, and further announcements on Cabinet posts,  will obviously come out as we move through the day.

With this degree of certainty we have seen some good GBP prices through the Asian session with GBPEUR touching 1.1835 and GBPUSD getting to 1.4970. Gains will be uneasy given the UK has not had a coalition government since WW2 and that the risk premium that investors have on UK assets was not going to disappear overnight. Saying that we at World First are glad we have a decision as it allows us to work on our forecast landscapes for the rest of 2010.

The news doesn’t stop with Cameron’s shoes slipping under the bed in No.10 however as today sees the Bank of England’s second Inflation Report of 2010. This can of course send sterling either way; should the MPC signal that the some of the monetary looseness may be taken out of the system then this would suggest that interest rate rises are just round the corner and would be GBP positive. If this is not the case however we would be worried that our notoriously sticky inflation would continue to remain high and that would see GBP fall. The announcement is due at 10.30. We also have UK unemployment at 09.30.

Other data today includes the advance release of EU GDP (10.00) and the US trade balance at 13.30.