Sterling
What had looked like a quiet week for Sterling got off to an explosive start yesterday. Traders initially sold the Pound on a surprise announcement that UK Prime Minister Theresa May would give a statement outside 10 Downing Street. In that statement the PM outlined plans to hold snap elections on June 8. All the main political parties swiftly voiced their support for the early vote and Sterling soared.
Most pollsters give the Conservative party a large lead over Labour and markets believe the election will see Theresa May gain a larger majority in parliament. This, analysts believe, will give the PM a clear mandate to follow through on her Brexit strategy, silencing the strongest critics within her party and those in opposing parties who would like to retain access to the single market. By removing the obstacle of a 2020 election, May would also gain a little more room to manoeuvre in terms of forming a transitional agreement. All of these factors were seen as Sterling positive.
Euro
The Pound to Euro exchange rate surged by 150 pips yesterday to hit a 2017 high as investors cheered the announcement of UK general elections in June.
While the Euro has suffered from election jitters, due to fears that anti-EU candidates Marine Le Pen and Jean-Luc Melenchon could emerge victorious in the EU’s second-largest economy, Sterling was positively energised by news of a vote. Barring a big political upset, the election will most likely see UK Prime Minister Theresa May elected with a large majority. Markets are betting that this will strengthen the UK PM’s hand in negotiations with the EU and this boosted the appeal of Sterling.
Later today Eurozone CPI is expected to show that inflation came in at 1.5% in March.
US Dollar
The Pound rocketed higher by over three cents against the US Dollar yesterday as snap elections bolstered British sentiment. ‘Cable’ reached a six-month high during the afternoon, touching levels not seen since the start of December 2016.
Having only recently settled above one longstanding technical resistance level, GBP/USD managed to strike above another significant resistance barrier yesterday. Some analysts noted that the decision to hold a general election this year could prove a pivotal turning point in the fortunes of the Pound. A stable Conservative government with a clear mandate to negotiate Britain’s exit from the European Union could yield a much better trade deal than is currently anticipated and this could prompt a large scale reevaluation of Sterling from the big investment houses.
Canadian Dollar
A massive 400-pip jump in GBP/CAD took the Pound to its highest level for seven months against the Canadian Dollar yesterday. Expectations of rising shale gas output sent crude oil to an 11-day low, which dampened sentiment towards the ‘Loonie’ slightly, however, it was the 2017 UK snap election news that drove Sterling’s rampant gains against the North American currency.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by around 400 pips yesterday to hit its highest level since the first week of 2017 yesterday.
The Reserve Bank of Australia released the minutes from its latest meeting, in which it was noted that domestic labour and housing markets required ‘careful monitoring’. The report had a muted impact on demand for the ‘Aussie’, with most of Sterling’s gains coming following UK PM Theresa May’s shock call for elections in June.
New Zealand Dollar
Sterling struck a seven-month high versus the New Zealand Dollar yesterday, rallying by around 300 pips as traders readjusted their bets for the Pound going forward. The latest New Zealand dairy auction saw prices increase 3.1%, which gave the ‘Kiwi’ a slight leg-up but it was not enough to make a significant mark against the ebullient Pound.
This evening sees New Zealand CPI for the first quarter released, with analysts predicting a rise from 1.3% to 2.0%.
Data Released
10:00 EUR Euro-Zone Consumer Price Index (YoY) (MAR F) Medium 1.5%
23:45 NZD Consumer Prices Index (YoY) (1Q) High 2.0%