Sterling
The Pound got off to a rocky start this week as traders sold out of Sterling on fears that a closer-than-anticipated election could impact Britain’s ability to pursue a smooth Brexit transition.
Theresa May saw her lead over Jeremy Corbyn halve to around 9-points over the weekend following a backlash over proposals to reduce state support to elderly voters. May has since been forced to U-turn on the so-called ‘dementia tax’, noting that there would be an ‘absolute limit’ on lifetime care costs, which has mildly helped to soothe the pain for the Pound.
Euro
Speaking to a group of schoolchildren in Berlin, German Chancellor Angela Merkel noted that the Euro was ‘too weak’ and blamed the European Central Bank’s quantitative easing scheme for dragging the single currency down. It’s unlikely that any of the schoolchildren used that information to execute currency trades, but the Euro rocketed higher across the board after the comments.
Merkel’s hawkish remarks drove the Pound to Euro exchange rate down by around half a cent to strike a new 50-day low. It will be interesting to see how ECB President, and QE advocate Mario Draghi responds to Merkel’s comments when he speaks later this week in Madrid. If Draghi indicates that the central bank also considers the Euro ‘too weak’ then ECB rate hike bets are liable to surge. However, if Draghi dismisses the need to remove stimulus then the single currency could give back some of its recent gains.
US Dollar
‘Cable’ wobbled a little yesterday as traders reacted to news that the Conservatives’ lead over Labour had halved in under a week. This was seen to go against the argument that a strong Tory majority was practically a given, which in turn would help strengthen Theresa May’s hand in the upcoming Brexit negotiations.
Sterling bobbed back above a key psychological resistance level, but GBP/USD could well slide from the current eight-month highs if US President Donald Trump manages to shrug off his recent scandals. Allegations that Trump sacked former FBI director James Comey to prevent an investigation into his own connections with Russia have raised the probability of impeachment, however, that does seem an outside chance at this juncture.
The Federal Reserve is set to release some policy clues during Wednesday’s minutes report and any hints at a June rate hike could easily push GBP/USD lower.
Canadian Dollar
The Pound to Canadian Dollar exchange rate skidded to its lowest level since April yesterday as UK election concerns kicked in and oil prices ticked higher. Crude oil, Canada’s most-lucrative export, rallied as expectations of an OPEC-led production cut extension grew. Major oil producers are due to meet in Vienna later this week to discuss the deal, which should see global production cut by 1.8 million barrels for a further nine months.
Australian Dollar
Impacted by concerns that Britain’s Brexit negotiating platform might be less strong and stable than initially anticipated, Sterling depreciated by around half a cent versus the Australian Dollar yesterday.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate slumped -150 pips to strike a 20-day low yesterday as markets readjusted Sterling positions in reaction to election volatility in the UK.
Data Released
09:00 EUR Markit Eurozone Composite PMI (MAY P) Medium 56.7
09:00 EUR German IFO – Business Climate (MAY) Medium 113.1
09:30 GBP Public Sector Net Borrowing (Pounds) (APR) Medium 8.0b
14:45 USD Markit US Manufacturing PMI (MAY P) Medium 53.1
23:45 NZD Trade Balance (New Zealand dollars) (APR) Medium 267m