Sterling bounces on election coalition

UK Conservative party leader David Cameron was appointed as UK Prime Minister yesterday evening in "a proper and full coalition between the Conservatives and the Liberal Democrats". Lib Dem leader Nick Clegg has been appointed as deputy PM, George Osborne is Chancellor while Vince Cable, the LibDem Treasury spokesman, has been given responsibility "for business and banks" and it is believed that the Bank of England will have oversight of UK bank regulation.

Yesterday's appointment of David Cameron saw Sterling rise broadly against the major currencies, gaining 0.6% against the US Dollar above £/$ 1.50 and up 1.3% against the Euro to £/€ 1.1815. There was also gains against the Aussie dollar even though the Austrailan budget showed Australia would return to a budget surplus by 2012/13.

The reason for the fall in the Aussie dollar, back towards the 2010 high at £/AUD 1.69, was because a larger slice of the surplus is based on the assumption that China's growth will continue and their demand for Australian raw materials will increase. The problem here is that the Chinese are trying to reign in their booming economy.

The main data yesterday was the UK National Institute of Economic and Social Research (NIESR) GDP growth estimate for the first quarter which was revised up to 0.5% following 0.2% initially. UK manufacturing production was also up 2.3% whilst industrial production rose 1.2% in Q1 2010 following a gain of 0.4% in Q4 2009.

Today will see latest set of UK unemployment figures, where it is expected to see a drop of 20,000 in the April claimant count. The Bank of England is also publishing its latest inflation report, where the market will be looking for confirmation that the Bank's inflation outlook hasn't changed too much from its last report, given the recent increase in the PPI figures.