GBP/EUR – Markets Optimistic after General Election Called
Sterling surged across the board in the wake of Theresa May’s unexpected call for a general election. With markets forecasting an increased Conservative majority, the expectation is for the move to increase political stability in the long term. Although such a result would limit the influence which the opposition parties can exert over Brexit (increasing the risk of a hard exit) the mood nevertheless remained optimistic. If the polls continue to point towards a strong lead for the Tories then investors could be inclined to favour the Pound, leaving GBP exchange rates on a bullish trend. However, given recent political upsets the result of the election is far from a done deal, which could limit any gains in the near term.
GBP/USD – Weaker Retail Sales Could Dent Pound
Despite the current Pound rally, recent UK data has remained generally disappointing, limiting confidence in the strength of the domestic economy. The turmoil of another vote is unlikely to benefit economic conditions, with growth expected to remain under pressure as businesses wait for a renewed sense of clarity. Friday’s retail sales figures could dent GBP exchange rates, with forecasts pointing towards a -0.3% contraction on the month. If consumer spending shows signs of slowing as the pressure on household finances builds this could prompt a fresh slump for the Pound. Given that high levels of consumer activity have been responsible for much of the resilience of the domestic economy, a weaker showing here would be particularly unwelcome.
USD/GBP – Mounting Global Tensions Support US Dollar
Geopolitical volatility helped to bolster demand for the US Dollar as the week progressed, with tensions rising over North Korean missile tests. This increased shift towards safe-haven assets offset some of the impact of disappointing domestic data on USD exchange rates, as the manufacturing sector and housing market showed some signs of weakening. Even so, investors continue to bet on the Federal Reserve continuing to tighten monetary policy over the remainder of the year. However, if March’s leading indicators index offers further evidence that the world’s largest economy is starting to falter this could lead investors to sell out of the ‘Greenback’. While the US Dollar is somewhat lacking in upside potential it could come under increased downside pressure if market confidence is shaken.
EUR/USD – Tight French Election to Dominate Outlook
The distance between candidates in the French presidential race is narrowing as the first round of voting draws closer, although the odds continue to favour centrist candidate Emmanuel Macron. Confidence in the Euro was also dented by the confirmation that inflationary pressure within the Eurozone eased back in March, underlining the current neutral policy bias of the European Central Bank (ECB). Election jitters are likely to limit the appeal of the single currency until it becomes clear which two candidates will advance to the second round. No particular support is expected to come from the latest raft of manufacturing and services PMIs, which are forecast to show a modest loss of momentum across the Eurozone.