Can Sterling Stay at $1.30?
The Pound rose to $1.30 against the US Dollar yesterday after the positive Retail Sales release, but then it quickly dropped to $1.28 before slowly recovering. Today, Sterling has climbed back to yesterday’s rate, and the Euro is also performing well against the weakened US Dollar. The markets are cautiously adjusting the Pound’s value as they analyse prime minister May’s economic pledges.
The US Dollar fell to the lowest level it has seen since President Donald Trump took office as his Russian political crisis unnerves global markets. The President continues to make inflammatory comments on the crisis he has created, which is a distraction from the economic stimulus and market reform he promised.
Pound Sterling – UK Markets
The rally between Sterling and the US Dollar couldn’t get higher than $1.30, with the British currency consolidating its position. The Pound has risen 7.5% in value over the last 30 days.
Theresa May revealed the Conservative manifesto, which has been described as controversial due to the pledges relating to social care reforms and market regulation. The prime minister emphasised her will for more state involvement in the economy, saying that “we do not believe in untrammelled free markets.” Citigroup analysts suggested that the Conservative manifesto, showed no signs of moving to a “Singapore-upon-Thames” model of a deregulated, low tax economy.
The Pound remained stable against the Euro, with the rate set at €1.16. Theresa May promised British voters that, if elected, her reforms will help the budget balance by mid-decade. Citigroup suggests that the Tories will win a majority of between 104-190 seats in the June 8 general election. Despite the PM’s optimism, four out of five British consumers fear price rises caused by Brexit, according to Mintel’s report.
US Dollar – US Markets
The US Dollar lost 0.40% in value against the Euro. The exchange rate was set at €0.89. The political crisis in Washington continues, creating uncertainty to investors and traders.
During a press conference in the US capital, Donald Trump denied any collusion with Russia in the 2016 presidential election, however, he hinted at the possibility that some members of his staff may have been involved. When asked about the appointment of Robert Mueller as special counsel, Trump said: “I respect the move, but the entire thing has been a witch hunt. There is no collusion, but I can always speak for myself and the Russians.”
A Citi report suggests that Mueller’s appointment causes more political uncertainty, which will make policy progress in the US less likely. If the US government won’t be able to push through reforms, especially in the tax system, this will mean the weakening of the US currency.
Euro – European Markets
The Euro rallied against the US Dollar, setting the rate at $1.11. The single market currency strengthened by 0.4%, boosted by the Eurozone’s good economic data and the political turmoil in the US.
According to a survey, Reuters reported that Angela Merkel and the Conservatives continue to lead in the polls, with less than 5 months away ahead of the September parliamentary elections in Germany. Chancellor Merkel winning is seen as a factor of political stability in the EU, and such news adds support to the Euro.
The Greek parliament has agreed to the latest austerity measures demanded by its creditors, in order to unlock the next tranche of financial aid. Greece needs funding to repay a tranche of debt, which is due to be paid in July. Moody’s kept the credit rating of Portugal stable, reflecting the country’s economic recovery, which is countered by high government debt.
Other Currencies – Highlights
The Pound to Australian Dollar remained stable at 1.74 AUD. The Aussie didn’t manage to continue its good performance, which was based on the better than expected unemployment data announced. The Australian stock market slipped to 0.25%, widening its weekly losses to almost 2%.
The New Zealand Dollar slumped against the Pound, losing 0.33% in value. The exchange rate was set at 1.88 NZD. The good news was, that visitor arrivals increased in April by 21.5% on a year to year basis, didn’t seem to affect the Kiwi.
Sterling to Brazilian Real exchange rate stabilised at 4.36 BRL. On May 16, the rate was at 3.99 BRL. The reason for the weakening of the Brazilian currency, is a political crisis that involves the president Michel Temer, having been recorded discussing a payment, in an effort to silence a jailed former government speaker. The stock market was also down by 10% before trading was halted.