Sterling rallied by around two cents versus the US Dollar last week to strike its highest level since October 2016 following the announcement of snap UK elections in June.
Theresa May Calls Snap Elections
GBP/USD rocketed higher last Tuesday in reaction to UK Prime Minister Theresa May’s surprise call for a general election in June. Recent polls suggest May holds around a 20-point lead over Labour leader Jeremy Corbyn, suggesting the early elections will give the Tories a wider parliamentary majority. Traders believe this will subsequently provide May with a stronger platform to pursue her vision for Brexit Britain.
By pushing back the next general election from 2020 to 2023, June’s vote will also provide breathing space for a transitional deal, rather than forcing the government to rush through a Brexit deal in the two-year divorce period or face testing world trade organisation tariffs. ‘Cable’ pushed through psychological resistance at 1.25 and went on to strike a six-month high of 1.28 following the election announcement, as the likelihood of Britain receiving a preferential trade agreement with the EU increased.
Trump Trade In Doubt
The Pound to US Dollar exchange rate remained on sturdy footing last week, with Sterling energised by the election call and the ‘Greenback’ hampered by an apparent dovish twist from US President Donald Trump. Having previously called for higher interest rates, Trump recently stated his appreciation for accommodative policy and hinted he would like the domestic currency to weaken. This dovish rhetoric, coupled with the threat of military conflict with North Korea, which many fear could disrupt financial markets, has reduced long-term Federal Reserve rate hike bets and weighed on demand for the US Dollar.
Data last week showed that US manufacturing activity slowed from 53.3 to 52.8 in April and we could see more pressure applied to the ‘Greenback’ if this week’s GDP report underwhelms.
Week Ahead
The key events to look out for this week are the US and UK growth reports for the first three months of 2017. US GDP is tipped to have cooled significantly from an annualised rate of 2.1% to 1.1%, which could drive GBP/USD higher. British annualised GDP is anticipated to have accelerated from 1.9% to 2.3%, however, quarterly growth is seen slowing from 0.7% to 0.4%, which could temper any positive sentiment towards Sterling.