Sterling
With the UK general election looking much closer than analysts had anticipated, political jitters have started to dominate exchange rate moves in Sterling.
The Pound began yesterday’s session on the back foot following a new form of polling from YouGov, which suggested the Tory party could lose their majority on June 8. However, Sterling ticked higher through the London session thanks to a poll from Panelbase giving Theresa May a 15-point lead over Jeremy Corbyn and a poll from Kantar giving the Conservatives a 10-point lead over Labour.
The recent spate of trading suggests that, in the run-up to the election at least, strong Tory polls are liable to boost the Pound, while support for Labour is likely to see Sterling tumble. The rationale appears to be that a strong majority would strengthen Theresa May’s hand in the upcoming Brexit negotiations, however, any kind of government headed by Jeremy Corbyn could actually bolster Sterling’s appeal in the long run because the Labour leader is less likely to pursue a hard Brexit outside of the EU single market.
Euro
The Pound recovered most of its losses versus the Euro yesterday as markets responded to the latest two opinion polls, which put the Conservatives ahead of the opposition Labour party.
Data in the currency bloc was a mixed bag. German unemployment skidded to 5.7%, its lowest level since reunification 27 years ago, which helped drive the Eurozone-wide figure down to an eight-year low of 9.3%. However, the single currency failed to garner any positive sentiment from the results because they were overshadowed by a sharper-than-expected dip in CPI from 1.9% to 1.4%. The softer inflation outlook means there is less pressure on European Central Bank President Mario Draghi to start winding down the ECB’s large-scale quantitative easing programme.
US Dollar
Although Donald Trump’s Presidential reign amounts to more than an unfinished, misspelt late-night tweet, a message sent from his Twitter account last night – ‘Despite the constant negative press covfefe [sic]’ – does encapsulate the underwhelming and, at times, bewildering nature of his term.
When Trump was elected back in November markets and the US Dollar surged on hopes of ‘massive’ infrastructure spending and the ‘biggest tax cut’ in US history. Plagued by scandals relating to the FBI and Russia, the President has thus far failed to pull through on his campaign pledges. The most detailed account of his tax plan to date is a one-page document released in April, which more resembled a conceptual wish list than workable plan to ‘grow the economy and create millions of jobs’.
The US Dollar has softened against the Pound in recent weeks, with GBP/USD recently striking an eight-month low, as traders started to give up on Trump’s grand policy proposals. ‘Cable’ rallied by around a cent against the ‘Greenback’ yesterday, and baffling tweets such as ‘covfefe’ help to explain why Sterling has managed to appreciate by over eight cents since the middle of March despite mounting expectations of further rate hikes from the Federal Reserve.
Canadian Dollar
Rising from around 0.7%, the Canadian economy registered quarterly growth of 0.8% yesterday, confirming Britain’s position as the joint-weakest G7 economy in Q1. Canada was the last of the group of seven to report its first quarter GDP output and the North American nation’s sturdy score puts it at the top of the charts, whereas Britain and Italy ranked at the bottom with just 0.2% growth.
However, the sparkling Canadian figures, which saw monthly GDP jump from 0.0% to 0.5% and annualised growth soar from 2.7% to 3.7%, were not enough to send the Canadian Dollar higher against the Pound. GBP/CAD ended the London session up by around 150 pips, mostly due to new opinion polls putting Conservative Prime Minister Theresa May ahead of Labour leader Jeremy Corbyn.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by over 150 pips yesterday as markets bought back into Sterling in response to the Tory-supportive UK general election polls. Data in China showed that manufacturing output performed better-than-anticipated in May, printing at 51.2 compared to forecasts of 51.0. Although sturdy Chinese data is liable to boost trade prospects between China and Australia, the factory output PMI failed to give the ‘Aussie’ a lasting boost yesterday.
New Zealand Dollar
Sterling appreciated by around a cent against the New Zealand Dollar during the London session yesterday despite upbeat comments from Reserve Bank of New Zealand Governor Graeme Wheeler on the state of the Antipodean economy. The ‘Kiwi’ caught a little bit of a (temporary) bid due to Wheeler’s positive assessment of the housing market and the dairy sector.
Data Released
09:30 GBP Markit UK PMI Manufacturing SA (MAY) Medium 56.5
15:00 USD ISM Manufacturing (MAY) High 54.6