The Pound remained in touching distance of a series of multi-month highs against the majors yesterday as markets largely stuck with their assessment that early UK elections would lead to a stronger Tory majority, thereby strengthening Prime Minister Theresa May’s hand in the upcoming Brexit negotiations.
Sterling soared on Tuesday when June’s snap elections were announced but the Pound has not pushed ahead since then. This means we are currently seeing some of the strongest Sterling exchange rates of 2017 but it also means there is potential for the Pound to slip back if Brexit, or indeed election, jitters start to impact trading patterns.
The Euro was supported yesterday morning by a new poll suggesting that centrist Emmanuel Macron is likely to win the French Presidential election. However, subsequent polls showed that support for the four leading candidates remains fairly similar with around 30% of voters as of yet undecided. Some analysts noted that the very real threat of two anti-EU candidates (Marine Le Pen and Jean-Luc Melenchon) making it through to the second round was not accurately priced into financial markets. Others posited that the single currency would likely recover next week if Sunday’s first round of votes sees both pro-EU candidates (Emmanuel Macron and Francois Fillon) progress.
European data yesterday showed that consumer confidence in the currency bloc increased from -5.0 to -3.6 in April, while today’s manufacturing PMI is tipped to see a slender slowdown in activity from 56.2 to 56.0. With election concerns taking stage, and barring any big shocks, ecostats are unlikely to play a significant role in shaping GBP/EUR sentiment over the next few weeks.
The Pound to US Dollar exchange rate inched higher by another half cent yesterday as traders continued to buy into ‘Cable’ following this week’s shock election announcement.
GBP/USD has struggled in recent months to sustain itself above longstanding technical resistance at 1.25 but the election news, combined with dovish remarks from US President Donald Trump (which contrast with his campaign pledges), appears to have prompted a shift in investor sentiment. However, given the unpredictability of Trump’s actions, it is certainly possible that the ‘Greenback’ could recover if the US President shifts back into bullish mode.
The US Dollar rallied strongly when Trump was elected due to bets that his protectionist policies would stimulate the US jobs market, drive wages higher, stoke inflation and prompt a swift rise in Federal Reserve interest rates. However, remarks last week supportive of low borrowing costs and a weaker Dollar have left markets confused as to what Trump’s Presidency actually means for the ‘Greenback’.
The Pound to Canadian Dollar exchange rate struck a fresh seven-month high yesterday as lower oil prices and expectations of softer price pressures in Canada weighed on the ‘Loonie’.
Rising oil inventories initially weighed on crude prices, however, rumours of an extension to the OPEC production cut deal allowed oil to recover later in the day. This afternoon’s Canadian CPI report is tipped to show inflation cooling from 2.0% to 1.8% in March, which is liable to negatively impact Bank of Canada rate expectations and weigh on the Canadian Dollar.
GBP/AUD remained close to, but just below, the 2017 high it struck on Wednesday. The Pound is around five cents stronger than it was prior to the UK snap election announcement on Tuesday morning and there is little on the agenda today likely to drive significant volatility. The March UK retail sales report is anticipated to show a mild slowdown from 4.1% to 3.8%, but the figure is unlikely to put too much pressure on the energised Pound.
Sterling appreciated by over 150 pips versus the New Zealand Dollar yesterday as demand for the Pound remained sturdy following the week’s shock UK snap election announcement.
09:30 GBP Retail Sales (YoY) (MAR) Medium 3.8%
09:00 EUR Markit Eurozone Manufacturing PMI (APR P) Medium 56
13:30 CAD Consumer Price Index (YoY) (MAR) High 1.8%
14:45 USD Markit US Manufacturing PMI (APR P) Medium 53.5
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