Sterling
The Pound managed to overcome a disappointing UK service sector result yesterday to rally versus most of the majors on a poll putting Theresa May 11-points ahead of Jeremy Corbyn.
Following upbeat manufacturing and construction reports, the dominant services PMI slowed from 55.8 to 53.8 in May. Uncertainty ahead of the election was blamed as some firms delayed investment decisions until after the vote. Having grown by just 0.2% in the first quarter of the year, the British economy appears set for subdued growth once more in the second quarter.
However, Sterling was not impacted by the usually influential services report. Instead, traders focussed on an ICM poll putting the Tories 11 points ahead of Labour prior to Thursday’s general election. The ICM poll suggests a stronger lead for the Conservatives than most other polling groups and was seen as a positive signal for the Pound because traders believe a sturdy Tory majority would strengthen Theresa May’s hand in the upcoming Brexit negotiations.
Euro
The Pound to Euro exchange rate rebounded from a two-and-a-half-month low yesterday as markets reacted to the latest ICM poll, which gave the Tories an 11-point lead, rather than the most recent YouGov survey, which suggests the Conservatives will fall 21 seats short of an overall majority.
In the Eurozone, private sector growth jumped to a six-year high as the composite of service sector and manufacturing activity printed at 56.8, which analysts said was consistent with quarterly economic growth of around 0.7%. Today’s only real ecostat of note is anticipated to show that Eurozone retail sales advanced 2.1% during April.
UK general election sentiment is liable to dictate trading patterns this week, meaning we could see a decrease in demand for the Pound if Theresa May’s support is seen dwindling. The Prime Minister faced heat yesterday over accusations that a 20,000 reduction in British police officers during her six years as interior minister from 2010 to 2016 had made it more difficult for security forces to prevent terror attacks.
US Dollar
‘Cable’ struck a one-week high yesterday, appreciating by around half a cent, as fears of a hung parliament receded slightly.
American data saw the ISM non-manufacturing index cool from 57.5 to 56.9, while US factory orders registered a -0.2% decline, the first fall in five months. The disappointing figures appeared to weigh mildly on the US Dollar, however, GBP/USD remains capped by psychological resistance for the time being.
New opinion polls pointing towards a hung parliament could drive the Pound lower versus the US Dollar, while surveys suggesting a significant Conservative majority could have opposite effect.
Canadian Dollar
The Canadian Dollar suffered yesterday as oil prices tanked on fears that developments in the Middle East could harm the recent OPEC production cut extension.
Yesterday Saudi Arabia, the United Arab Emirates, Egypt and Bahrain severed ties with Qatar, accusing the small nation of supporting extremism and undermining regional stability. The condemnation could pose risks to geopolitical security, and anxieties of this nature initially boosted crude oil prices. However, markets are currently concerned that Qatar could reject the OPEC production cut deal and start selling additional barrels into the global supply chain.
The fear of increased supply took oil prices lower by around 1% yesterday and allowed GBP/CAD to strike a one-week high.
Australian Dollar
The Pound to Australian Dollar exchange rate fell back slightly yesterday as Chinese PMI data inched higher. The manufacturing index rose from 51.2 to 51.5, while the service sector PMI jumped from 51.5 to 52.8. The data was seen to bode well for future trade between the two nations.
New Zealand Dollar
Sterling strengthened by around half a cent versus the New Zealand Dollar yesterday ahead of data from the latest New Zealand dairy auction, which could set the tone for GBP/NZD during today’s session. Dairy products are New Zealand’s most-lucrative exports, and as such fluctuations in prices tend to have a reciprocal impact on the wider economy and the ‘Kiwi’ Dollar.
Data Released
10:00 EUR Euro-Zone Retail Sales (YoY) (APR) Medium 2.1%