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Wednesday 03rd of March 2010
March 1, 2010    

Sterling dives to 10-month low amid election fears

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by Kay Murchie

The pound plummeted to a 10-month low today over fears of a possible hung parliament in the forthcoming election.

Sterling lost 1.6% and dipped below $1.50 for the first time since May 2009 - it has already lost 7% against the dollar this year.

The pound also lost ground against the euro and many other major currencies.

A Sunday Times survey revealed the Conservative’s lead has narrowed to two points - down from six points last week - the narrowest gap for two years.

This could give Labour 317 seats, nine short of an overall majority, with the Conservatives on a total of 263 MPs.

A hung parliament (in which no one political party has an outright majority) would make it harder to pass legislation and undermine a fragile UK recovery.

Prime Minister Gordon Brown has to call a general election by June but there is speculation that the PM may call an election before this.

According to Mark O’Sullivan, director of dealing at foreign exchange firm Currencies Direct: “Until the political situation in the UK becomes clearer, sterling will remain very, very vulnerable.”

Meanwhile, sterling was also hit by Prudential’s purchase of AIA - the Asian arm of US company American International Group (AIG), since the deal would involve selling sterling and buying US dollars.

In other news today, the Bank of England revealed a sharp fall in the number of new mortgages approved in January.

According to the Bank, mortgage approvals for the month stood at 48,198, down from 58,223 in December and slightly under analysts’ expectations of 50,000.

However, while the figure is 43% higher compared with January 2009, it represents the lowest level since May 2009.

The Bank attributed January’s sharp fall to the end of the stamp duty holiday, which prompted a rush to buy homes in December.

However, the figures have increased fears that house prices could fall again this year and raised concerns about the state of the UK economy.

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