Sterling
Sterling declined sharply last Friday as traders reacted to new polls that put Labour’s Jeremy Corbyn just five points behind Tory Prime Minister Theresa May. The latest surge of support for Labour means that the Conservative’s lead has been quartered from around 20 points in under a month, which reduces the probability that May will gain the landslide victory that many expected when she called for snap elections six weeks ago.
Markets had hoped that a strong Tory majority would strengthen May’s hand in the upcoming Brexit negotiations, which initially boosted the Pound. Now that the election looks a lot closer investors are selling Sterling due to fears of a potential hung parliament and the uncertainty that would entail.
Euro
The Pound to Euro exchange rate tumbled by around a cent on Friday to touch a two-month low as demand for Sterling collapsed in response to the latest UK general election poll results. Although a victory for Labour would probably benefit the Pound in the long run, due to increased spending measures and a potentially ‘softer’ Brexit, the uncertainty posed by the tighter poll results weighed on the UK currency.
The Pound drifted higher throughout Monday’s session and recovered some of its losses during the evening when Greek finance minister Euclid Tsakalotos warned the nation’s creditors that it would not accept the next step in the bailout negotiations if the EU and the IMF did not agree to debt relief at next month’s meeting. Greece argues that debt relief is necessary to bring the embattled nation’s finances back to sustainable levels, while its creditors have thus far been reluctant to sign-off any such measures. The single currency dipped following the statement, which was seen to increase the chances of Greece defaulting on future bond repayments.
US Dollar
‘Cable’ depreciated by around 120 pips on Friday to strike a one-month low as UK election jitters battered the Pound and better-than-anticipated US growth figures bolstered the appeal of the US Dollar.
First quarter annualised US GDP growth was upgraded from 0.7% to 1.2%, smashing economists’ forecasts of 0.9%. Given that officials at the Federal Reserve were looking for signs that American economic activity is not beginning to trend slower, the positive revision is likely to prompt policymakers to vote for higher interest rates in June. Indeed, markets are now pricing an 84% chance of a rate hike next month, which is boosting the appeal of the ‘Greenback’.
Canadian Dollar
Sterling lost out on over two cents to the Canadian Dollar on Friday as political uncertainty led to a market-wide pummeling of the Pound. GBP/CAD touched a monthly low on Friday and could cede more ground later this week when domestic growth is tipped to print at an annualised rate of 4.3%, significantly higher than the previous score of 2.6%.
Australian Dollar
The Pound to Australian Dollar exchange rate slid by around 150 pips on Friday to touch its lowest level since the start of May as Theresa May’s Brexit negotiation stance was dealt a blow by Jeremy Corbyn’s rise in the polls. Sterling drifted higher by around half a cent yesterday as traders locked in profit from Friday’s steep GBP/AUD losses.
New Zealand Dollar
A three-cent depreciation in GBP/NZD took Sterling down to a six-week low against the New Zealand Dollar on Friday. The Pound posted a minor recovery of around 50 pips yesterday but the UK currency remains close to its lowest levels of the month versus the ‘Kiwi’.
Data Released
13:00 EUR German Consumer Price Index (YoY) (MAY P) High 1.6%
13:30 CAD Industrial Product Price (MoM) (APR) Medium 0.8%
13:30 USD Personal Consumption Expenditure Core (YoY) (APR) High 1.5%
15:00 USD Consumer Confidence (MAY) High 120