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Pound falls as Liberal democrats may ally with Labour
The pound erased gains versus the euro as Prime Minister Gordon Brown said Liberal Democrat leader Nick Clegg will discuss allying with his Labour Party, scuttling speculation Clegg was near a deal with the Conservatives. Sterling pared its advance versus the dollar as Brown said he’s willing to resign as Labour leader so negotiations on a formal coalition government with Clegg’s party can progress. David Cameron’s Conservative Party has pledged to cut the U.K.’s record budget deficit faster than its rivals. William Hague, the former Conservative leader, said earlier today that talks with the Liberal Democrats were “going well.” “This just shows that we have ongoing political indecision,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “Uncertainty is continuing to be the driving force and we know investors don’t like that.” The GBP/USD is currently trading at $1.4875 as of 19:45pm, London-Time, with a bearish trend.

The euro has won a reprieve with a European Union emergency aid deal but the prospect of draconian fiscal belt tightening in some euro zone countries and a more expansive monetary policy will likely cap further gains. The $1 trillion rescue package announced on Monday, which includes euro zone central banks buying government debt, sparked a relief rally in the euro. The single currency jumped more than 2 percent on the day towards $1.31. Investors were heartened that the plan should prevent countries including Portugal and Spain from following Greece into a debt crisis, and the announcement stopped panic selling in the euro, which hit a 14-month low of $1.2510 last week. However, analysts say that even if the plan is successfully implemented, it requires Greece, Portugal and Spain quickly to mend their finances and that this may slow their recoveries. The EUR/USD is currently trading at $1.4875 as of 20:00pm, London-Time, with a bearish trend.

Canada’s dollar appreciated the most in more than a year as crude oil and North American equities rallied after European policy makers announced a loan package designed to halt the euro region’s sovereign-debt crisis. The currency had its biggest loss last week since January even as a May 7 report showed record job gains in Canada that were quadruple the median forecast of analysts. Government bonds dropped today as the 750 billion euro ($960 billion) European assistance plan sapped demand for relative safety. “The events in the euro zone are providing the proper environment for a Canadian dollar rally,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia, Canada’s third-largest lender. “Crude is up very sharply, which is quite helpful as well.” The USD/CAD is currently trading at 1.0256 as of 20:30pm, London-Time, with a bullish trend.