Sterling
Today’s the day Britain decides. Will Theresa May and the Conservatives gain a large majority in order to strengthen the Prime Minister’s Brexit strategy? Will May lose seats and subsequently face a difficult period of Brexit discussions within the Tory party? Or will Jeremy Corbyn’s resurgent Labour party make a late surge and manage to form a coalition of left-leaning parties?
Option one – strong Tory majority – would likely see Sterling register knee-jerk gains across the board as investors breathe a sigh of relief. However, the longevity of such a move could easily come into question as the prospect of a fairly hard Brexit comes back into focus.
Option two – a Conservative government with fewer seats than they currently have – could prove troublesome for Sterling. Theresa May’s right-wing backbenchers could argue that a swift exit from the EU is necessary and this could drag on business sentiment and, ultimately, demand for the UK currency.
Option three – a hung parliament – would likely lead to knee-jerk Sterling selling as uncertainty clouds the horizon. However, if Jeremy Corbyn manages to form a coalition then we could start to see the Pound fight back, provided the new government appears stable and commits to retaining access to the EU single market.
Euro
The Pound to Euro exchange rate jumped by half a cent yesterday to touch a one-week high as markets reacted to dark mutterings that the European Central Bank is planning to cut its inflation outlook through 2019.
Rumours hit newswires yesterday morning that ECB President Mario Draghi was planning to lower the bank’s inflation forecasts during his policy statement later today. The central bank is widely expected to leave rates on hold at 0.00% and maintain the monthly QE target of €60 billion, however, some traders had been expecting a hawkish statement. But with an inflation downgrade seemingly on the cards demand for the single currency tanked as ECB policy tightening bets were pushed further into the future.
Expect swings in the GBP/EUR exchange rate over the next few days as traders try to come to terms with the UK general election and the outlook for ECB monetary policy.
US Dollar
Sterling also registered gains of around half a cent against the US Dollar yesterday. ‘Cable’ hit its highest level in almost a fortnight ahead of a potentially significant testimony in Washington DC.
Former FBI director James Comey is expected to testify that President Donald Trump pressured him to stop investigating ties between former National Security Advisor Mike Flynn and Russia. Flynn was sacked for not disclosing conversation he had with Russian officials, while Comey was fired for ‘performance related issues’.
The stakes are high because if it was found that Trump sacked Comey to pervert the course of justice then it could potentially lead to impeachment. This would put a stop to the ‘Trump trade’, which initially saw USD rise on hopes of large infrastructure spending and tax cuts that would drive US interest rates higher. Therefore the testimony could put the US Dollar under selling pressure.
Canadian Dollar
Sterling soared 150 pips to a fortnightly high against the Canadian Dollar yesterday as crude oil prices tanked on rising US stockpiles.
The value of Canada’s most-lucrative export, crude, plummeted 4% following reports south of the border that US stockpiles grew by 3.3 million barrels last week. The huge figure shocked forecasters, who had expected a drawdown of around 3.5 million barrels, and suggests that the global oil supply glut is not going away anytime soon.
Australian Dollar
Sterling lost ground to the Australian Dollar yesterday as annualised growth for the Antipodean economy printed higher than markets had anticipated. The yearly figure came in at 1.7%, which only narrowly beat the consensus of 1.6% but it was enough to send the ‘Aussie’ higher versus the Pound. On a quarterly basis, Australian GDP printed inline with market expectations of 0.3%.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate traded with little clear directional bias yesterday as traders continued to mull over the different computations of today’s UK general election. A status-quo victory for Theresa May appears the most likely outcome at this stage, however, pollsters famously wrongly predicted victories for Remain and Hillary Clinton last year so traders are taking nothing for granted.
Data Released
00:00 GBP UK Parliamentary Elections (All Day) High
10:00 EUR Eurozone Gross Domestic Product s.a. (YoY) (1Q F) Medium 1.7%
12:45 EUR European Central Bank Rate Decision (JUN 08) High 0.00%
12:45 EUR ECB Deposit Facility Rate (JUN 08) High -0.40%
12:45 EUR ECB Asset Purchase Target (JUN) High EU60b
13:30 EUR ECB President Mario Draghi Holds Press Conference High