8 June 2001, 12:54  Forex: Sterling continues slide in early London trade after Labour landslide

LONDON (AFX) - Sterling continued its downward march against other major currencies as the size of the Labour victory became clear, and speculation about an early entry at a much lower exchange rate into European Monetary Union intensified, dealers said. Labour is on course for a massive landslide victory with a majority of around 170 seats predicted.
In the wake of the results, William Hague, the anti-euro leader of the Conservatives, resigned. Some dealers said this could have further added to sterling's weakness as his successor may be less against euro entry.
"The confirmation of the size of the Labour victory has added to the further falls in sterling," Deborah Reed, a currency economist at Bank of America said.
"There are two euro stories going around. One is that we are going to have a rebound as the focus shifts to the referendum on euro entry which polls show Labour would lose, rather than the number of seats won," she added.
"The second scenario is that cable is going to fall further as sterling gets more linked to the euro scenario," Reed said. "The UK economy is looking in better shape than the euro zone and it is difficult to justify sterling falling further against the euro,
but over the next couple of years, sterling will be vulnerable to the EMU story," she added.
Reed said she thinks sterling will rebound to 0.5840 against the euro towards the end of around six weeks.
The fall in the price of sterling during the past hour and half is largely due to opposition leader William Hague's resignation announcement, said Kamal Sharma, a currency strategist at Commerzbank. Uncertainty over who is going to be the next Conservative party leader is affecting the sterling, as that is "very important in the context of the euro debate", he added.
The key question is whether the next Conservative leader is going to be for or against Britain joining the single currency, Sharma added.
"Obviously if you have a pro-Europe opposition, it takes away the conflict between the Labour and the Conservatives regarding the EMU," he said.
"If (pro-Europe) Kenneth Clarke announces his candidacy for the party leadership, we are going to see more pressure on sterling, whereas Michael Portillo or someone from the right of the party will probably have a neutral or just slightly negative effect," he said.

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