Today’s sample of Forex Analysis from

The GBP USD opened higher driven by spillover buying from the Euro, but by mid-session was trading well off its high. The initial rally was triggered by the possibility that the two major political parties - Labour and Conservative - were working together to map a plan for a balanced budget despite the possibility of a hung parliament.

The break began when the Liberal Democrats made a formal request to join the coalition. The weakness late in the session demonstrates that investors want to see a clear-cut plan by the next parliament to balance the budget and reduce the deficit. The request by the Liberal Democrats to join the Labour and Conservative parties at the planning meeting made traders nervous about the possibility of a hung parliament.

The strong rally in U.S. equity markets helped to drive up the USD JPY. The strong rally was actually a combination of less demand for lower yielding assets and the sale of 2 trillion Yen by the Bank of Japan last week.

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