Soft US labour market figures and a lack of conviction in President Trump’s policy proposals helped Sterling rally by around 70 pips versus the US Dollar last week.
Mixed Bag of US & UK Data
Data over the past seven days has shown sturdy performance in the UK manufacturing and construction sectors, but signs of weakness in the dominant service sector. Overall, the latest round of PMIs showed that private sector activity slowed to a three-month low of 54.5 in May.
Across the pond in the US, non-farm payrolls data showed that job gains slowed from 174,000 to 138,000 last month. The data was not enough to alter the consensus view that the Federal Reserve will hike interest rates this month, but it did cause analysts to reduce projections for further rate rises.
The ‘Greenback’ lost some ground to the Pound last week as markets became increasingly underwhelmed with Donald Trump’s Presidency. His plans to create jobs and drive economic growth through infrastructure spending and tax cuts have not come to fruition and some investors are starting to question if they ever will.
Corbyn Surge Creates Political Uncertainty Ahead Of This Week’s Vote
Labour leader Jeremy Corbyn’s recent surge in the polls has created a layer of political uncertainty that has weighed on demand for the Pound. Market movements this year, and in past election campaigns, suggest that Sterling is liable to appreciate on strong Tory polls and depreciate on signs of Labour gains.
However, historical data suggests that if the Conservatives were to win we could see the Pound start to slide over the next few weeks. On the other hand, a hung parliament would likely lead to knee-jerk Sterling selling, but could actually help propel the Pound higher in the long run as a Labour-led coalition would increase the chances of a ‘soft’ Brexit with retained access to the EU single market.
Other events to look out for this week include the UK industrial and manufacturing production reports on Friday, however, the UK general election is likely to take centre stage.