Sterling
The Pound drifted mildly higher versus the majors yesterday morning as investors digested the possibility that a hung parliament might not actually present a negative scenario for the UK currency on this occasion.
Usually the uncertainty of a hung parliament, and the coalition negotiations that go with it, would be considered bearish for the Pound. However, under the shadow of Brexit, the potential for a Labour-led coalition of centre-left parties could actually increase demand for Sterling. This is because a leftist coalition would most likely pursue a ‘softer’ Brexit, probably maintaining access to the EU single market. Analysts at JP Morgan, the second largest trader of currencies, released a note to this effect yesterday morning.
However, Sterling shed ground to the majors late last night when newswires reported that YouGov had predicted that the Conservative party could lose its parliamentary majority, suggesting that traders, on the whole, are still viewing a strong Tory victory as the best case scenario for Sterling.
Euro
Prominent Greek politicians made efforts yesterday to distance themselves from rumours that the embattled Hellenic nation was planning to default on upcoming bond repayments if it did not receive debt relief in June. However, finance minister Euclid Tsakalotos maintained the argument that Athens has fulfilled the necessary austerity measures to warrant the kind of debt relief that most analysts believe is crucial to bringing Greece’s debts back onto a sustainable path.
The Euro was subjected to a little bit of selling pressure in reaction to news that German inflation dropped from 2.0% to 1.4% in May. The disappointing figure is liable to weigh on the Eurozone-wide CPI print, which is expected to print at 1.5% later today, down from 1.9% previously.
US Dollar
The Pound to US Dollar exchange rate ticked higher by around half a cent yesterday, but remains around two cents worse off than it was this time a week ago. Sterling has fallen susceptible to election jitters over the past seven days, due to the recent surge in support for Labour leader Jeremy Corbyn, which has opened what was previously seen as a one-horse race.
With Federal Reserve rate hike expectations pointing strongly to tighter policy in June it could be difficult for ‘Cable’ to reclaim the eight-month highs it was hitting over the last few weeks. However, demand for the ‘Greenback’ was compromised a little bit yesterday due to a slowdown in US consumer confidence.
The American sentiment index skidded from 120.3 to 117.9, prompting some analysts to consider the possibility that consumer confidence has already peaked. The fear is that the bullish policies that drove sentiment higher following President Donald Trump’s election victory will never see the light of day. Indeed, there is little evidence to suggest that Trump has either the technical specification or the support of Congress to pass his famed tax reform and infrastructure spending promises.
Canadian Dollar
Sterling rallied by over half a cent against the Canadian Dollar yesterday as investors took the Pound broadly higher across the board. Having registered two days of slender gains following Friday’s substantial selloff, technical trading patterns suggest there is a 66% chance of GBP/CAD weakening slightly during today’s session.
This technical outlook is also supported by the fundamentals, with Canadian GDP predicted to improve. March’s monthly index is tipped to rise from 0.0% to 0.3%, the year-on-year print is expected to increase from 2.5% to 3.5% and the first quarter annualised score is anticipated to jump from 2.6% to 4.3%. These positive scores certainly open the door to a decline in GBP/CAD, although a disappointing set of GDP numbers could have the opposite (a negative) impact on the ‘Loonie’.
Australian Dollar
The Pound to Australian Dollar exchange rate glided a little bit higher yesterday as UK sentiment shored up slightly and Australian export prospects weakened.
Iron ore is Australia’s biggest export earner and the commodity hit a one-week low yesterday, marking a 28% slide since the middle of March. If iron prices continue to tumble then we could see further downward pressure on the commodity-correlated ‘Aussie’ Dollar.
New Zealand Dollar
Sterling failed to rack up any gains against the New Zealand Dollar yesterday, with traders fretting over the possibility that New Zealand interest rates could start to rise later in the year.
Data Released
09:30 GBP Mortgage Approvals (APR) Medium 66.0k
10:00 EUR Euro-Zone Unemployment Rate (APR) Medium 9.4%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (MAY) High 1.5%
13:30 CAD Gross Domestic Product (MoM) (MAR) Medium 0.3%
13:30 CAD Gross Domestic Product (YoY) (MAR) High 3.0%
13:30 CAD Quarterly Gross Domestic Product Annualized (1Q) High 4.3%