Sterling
It was a fairly quiet day on the currency markets yesterday for the Pound, with little fresh trading stimulus. A report from the Confederation of British Industry (CBI) signalled that UK factories witnessed the best three month period of exports for over six years between February and April. The CBI noted that Sterling’s 15%-20% depreciation since the Brexit vote had helped make UK goods more affordable to foreign buyers, however, it was also reported that investment plans had softened to the lowest level since 2011 due to uncertainty over Britain’s future trade relationship with the EU.
Indeed, analysts believe we are currently in a ‘sweet spot’ whereby exporters are both benefitting from a weaker domestic currency and full access to the single market. The fear is that exporters may run into trouble if trade tariffs are enforced post-Brexit, thus removing Britain’s currency-related competitive edge.
Euro
The Pound remained around 150 pips down on the Euro yesterday as markets bet that centrist, pro-EU Emmanuel Macron would easily beat far-right, anti-EU Marine Le Pen in the second round of the French Presidential election.
Markets were cheered by the fact that the other anti-EU runner, left-winger Jean-Luc Melenchon, had been eliminated. It was also seen as encouraging news that turnout was high, as this should work against anti-establishment candidate Le Pen. Although traders have significantly reduced bets of a Eurosceptic leader presiding over France, the race is far from run and we could see volatility over the next fortnight as the remaining candidates start chipping away at each other.
Le Pen is likely to label pro-EU, ex-banker Macron as a darling to the EU, while Macron is sure to focus on Le Pen’s divisive and inflammatory views on issues such as immigration and social cohesion.
US Dollar
Sterling gave up a little bit of ground to the US Dollar yesterday but GBP/USD retains a bullish outlook moving forward.
The ‘Greenback’ appears to be suffering from a shift in US policy expectations. President Trump’s ‘massive’ fiscal stimulus is nowhere to be seen and the outlook for rapid Federal Reserve rate rises has been dampened by dovish remarks from Trump, who now appears keen to maintain monetary accommodation in an attempt to drive down the value of the US Dollar and subsequently boost demand for exports. It remains to be seen how effective this strategy will turn out to be, but at the moment markets appear happy to let the ‘Greenback’ soften against the majors.
This afternoon sees US consumer confidence data, which is tipped to cool slightly from 125.6 to 122.5. The report could put a little bit of pressure on the US Dollar but 122.5 would still represent an above-trend result.
Canadian Dollar
The Pound to Canadian Dollar exchange rate held fairly steady yesterday as markets digested comments from US President Donald Trump on the future of the North American Free Trade Agreement (NAFTA). Trump argued that, under NAFTA, Canada had done disgraceful things to US farmworkers and vowed to enact change to prevent lumber, timber and energy workers suffering a similar fate. Although the comments point towards changes in NAFTA that could potentially impact Canadian trade with the US, the ‘Loonie’ avoided any significant losses.
Australian Dollar
The Australian Dollar rallied by around 70 pips versus the Pound yesterday as global risk sentiment improved on the results of the first round of the French Presidential election. With traders pricing in a much smaller chance of a French exit from the EU following Macron’s progress to the second round, stocks and shares rose across the board and this trend of risk appetite extended to the commodity-sensitive ‘Aussie’ Dollar.
New Zealand Dollar
GBP/NZD remained largely unchanged through yesterday’s session as increased risk sentiment failed to lift demand for the ‘Kiwi’ Dollar.
Data Released
09:30 GBP Public Sector Net Borrowing (Pounds) (MAR) Medium 1.5b
15:00 USD Consumer Confidence (APR) High 122.5