Sterling
The Pound ceded more ground to the majors yesterday as political uncertainty in the aftermath of last week’s election gripped markets.
There were a few developments that appeared to turn investors even sourer on the Pound yesterday: Brexit minister David Davis stated that the election had not changed the government’s approach to Brexit, Moody’s warned that uncertainty surrounding Theresa May’s minority government was a threat to the UK’s credit rating and Downing Street admitted that the Queen’s Speech could be delayed due to post-election talks between the Conservatives and the Democratic Unionist Party (DUP).
Euro
Sterling tumbled by around a cent to strike a new seven-month low against the Euro yesterday.
Demand for the Pound was curbed by news that the Queen’s Speech, a set-piece event where Her Majesty reads out the government’s policy plans from a goat’s skin parchment, may not take place on Monday 19 June as planned. The potential delay suggests governmental discord – either between the Tories and the DUP, or between Eurosceptic Conservative party members and those who would prefer a softer approach to Brexit. Either way the delay suggests political uncertainty and this weighed on Sterling.
Furthermore, traders were perturbed by comments from Brexit minister David Davis suggesting that the government was not planning to soften its Brexit stance, despite the apparent rejection of the government’s EU exit strategy during last week’s vote.
US Dollar
‘Cable’ slumped towards two-month lows yesterday, depreciating by another cent, as traders remained in the dark regarding Britain’s political and economic future.
It’s difficult to accurately predict economic performance at the best of times, let alone during an unprecedented divorce from your largest trading bloc, led by a minority government not-yet propped up by a controversial party at odds with mainstream social values (the DUP’s record on women’s and LGBT rights is fairly damning) with a leader described by backbenchers within her own party as having ‘unquestionably diminished’ authority. The tremendous near term uncertainty has made traders anxious to hold investments in Sterling and could continue to depress demand for GBP/USD for the foreseeable future.
Canadian Dollar
Sterling plummeted over 250 pips yesterday to reach new two-month lows against the Canadian Dollar as political uncertainty drove traders out of the Pound and rising oil prices bolstered the appeal of the ‘Loonie’.
The commodity-sensitive Canadian Dollar broke higher during the evening when crude oil jumped on signs that US inventories fell 1.8 million barrels and news that Saudi Arabia was planning to limit output to other Asian countries and the US.
Australian Dollar
The Pound to Australian Dollar exchange rate succumbed to a daily decline of around 100 pips yesterday, settling close to a two-month low as markets continued to punish Sterling for the UK’s profoundly risky outlook.
Today’s most important ecostat is predicted to show that British inflation remained at 2.7% in May, which is unlikely to have a marked impact on Sterling trading. A softer score could heap a little more pressure on the Pound. However, a higher print would struggle to have a positive impact because, with these levels of political and economic uncertainty, it would be mightily irresponsible of the Bank of England to start raising interest rates anytime soon.
New Zealand Dollar
Sterling declined by a further cent against the New Zealand Dollar yesterday as the Pound suffered steep losses across the board on fears that last week’s hung parliament could impair the British government’s Brexit divorce negotiations.
Most analysts believe that in the long run the election result could lead to a ‘softer Brexit’, perhaps with continued access to the single market, but the short-term implications remain starkly negative.
Data Released
09:30 GBP Consumer Price Index (YoY) (MAY) High 2.7%
10:00 EUR German ZEW Survey (Economic Sentiment) (JUN) High 21.8