1st TV Debate Points to Hung Parliament

With airports on lock-down due to the massive cloud of soot thrown up by an Icelandic volcano, Britain this morning woke up to headlines hailing Nick Clegg, the leader of the UK’s third party the Liberal Democrats, as the winner of the first US-style TV debate in history.

Sharon Lorimer

In a highly-staged managed 90 minutes, the man whom no one expects to be the next prime minister seized his time in the spotlight to score a significant victory against Prime Minister Gordon Brown and UK opposition leader David Cameron.

"Enter the outsider" was the headline in the Times, while the Conservative Telegraph paper led with "Clegg's star rises in great TV showdown".

Another major backer of the Cameron campaign is the Rupert Murdoch-owned tabloid the Sun. In a sign that its man had had a bad night, its front page ran with "We're all paralyzed by hot air" in a reference to both the debate and the thick cloud of ash heading towards Britain from Iceland.

An ITN poll of 4,000 voters seconds after the debate finished showed 51 percent believed Clegg had won the debate. Cameron came in at 29 percent, with Gordon Brown coming in last with just 19 percent.

May 6th and the Pound

Another poll of voting intentions in the wake of the debate showed Cameron has a 6 point lead over Gordon Brown, with Clegg's Liberal Democrats coming in a distant third. Victory in the first of 3 debates for Clegg will not win him the next election, but it could have a big impact on the final result.

Clegg had been expected to do well in the debate and was made favorite by the bookmakers beforehand. Gordon Brown, who has been in government for 13 years, was expected to be the weakest performer and the polls indicated that this was clearly the case.

Brown, though, did not have a terrible night and while the post-debate polls showed him to have lost, his team is probably happy that he was not a lot worse.

Team Cameron will, though, be a little worried this morning. With the polls showing its lead has fallen sharply over the last 12 months, the Conservative Party is a long way off securing the 10-point victory it needs to form the next government.

David Cameron should have excelled in this kind of environment, but as the Times put it, he appeared to be caught in the cross-fire between Brown and Clegg.

Monica Fan from State Street Global Advisors says Clegg clearly won the poll and thinks if he were to continue to perform well over the next 3 weeks, he might take enough votes off his two rivals to make a hung parliament more likely.

Fan says the smart money has been on a Cameron victory up until now and expects short-covering to boost the pound over the next 3 weeks before selling off aggressively once the election is over.

The scale of that sell-off, according to Fan, will depend on who forms the next government and what policies they implement post election. The best result for the pound, according to Fan, is a Conservative victory that would see a credible plan put in place to slash government spending thus protecting Britain's AAA rating.

A hung parliament and the resultant Labour/Liberal coalition would, in Fan's view, be very bad news for the pound. If Clegg continues to pick up support, then being short the pound could be a profitable position to take.