Pound loses ground to US dollar over election uncertainty

Uncertainty about a clear outcome in the forthcoming 6 May election sent the pound 1% lower against the US dollar today, to $1.5130. There are concerns that a hung parliament may delay the tough budget cuts that bond investors are demanding and today's fall means that sterling has lost about 10% against the US currency this year. Investors also sold the benchmark 10-year government bonds, pushing their yield up nine basis points to 4.01%. The move makes it more expensive for the government to borrow from international markets, and pushes up long-term interest rates, including those that millions of people pay in 20 or 30-year mortgage contracts. "Markets' worst fears are for a hung parliament and given the close race we can expect some volatility in gilts over the coming month," said Gary Jenkins, a credit analyst at Evolution Securities. The premium that investors demand to buy British bonds over the rock-solid German bunds rose one basis point to 85bps.