Sterling falls to five-year low

Sterling fell to a five-year low this week on a foreign exchange market experiencing rising volatility as interest rate and political uncertainties continued to dominate global currency trade.

The pound fell 2 per cent to $1.4629 versus the dollar over the week as signs of elevated concerns over the outcome of next month's general election resulted in market measures of volatility reaching levels not seen since the formation of the current coalition government.

"Even though we are more constructive on a longer-term basis, a $1.40 level for sterling/dollar is certainly not out of reach if the election aftermath turns ugly," said Steven Barrow at Standard Bank.

Meanwhile, after a couple of sets of disappointing UK data this week, including Friday's weaker than expected industrial production numbers for February, dollar bulls appeared to have shrugged off any negative impact from last week's unexpectedly weak US jobs data.

The pound performed more strongly against the euro, however, rising 1.5 per cent to £0.7242, with the single currency coming under heavy selling against most of its rivals this week following the publication of the minutes from the Federal Reserve's recent policy meeting.

The dollar gained 3.5 per cent to $1.0581 against the euro this week after the Fed's meeting minutes and comments from some of the central bank's officials suggested a June rate increase was still a possibility, despite a recent run of weaker than expected economic data.

John Hardy at Saxo Bank said the minutes were "far more hawkish than the market believed, as there was a robust discussion of whether the Fed should move in June, a scenario the market had priced out coming into this meeting."

The dollar index, which measures the currency against a basket of its rivals, jumped 3.1 per cent this week to 99.5.

Forex investors were caught wrongfooted this week by the Reserve Bank of Australia. Those with short positions on the country's dollar ahead of a widely expected rate cut were forced into covering moves when the RBA kept rates on hold at 2.25 per cent which pushed the Aussie higher on Tuesday.

The Aussie moved 1.6 per cent higher on Tuesday, but faded on subsequent sessions to leave it 0.8 per cent higher over the week against the US dollar at $0.7693.

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