Euro Slips on Eurozone Tension
Sterling recovered its losses against the Euro, after Friday’s slump. The British currency strengthened, remaining unaffected by the political uncertainty in the UK due to the upcoming June parliamentary elections. Prime Minister Theresa May and Jeremy Corbyn crossed their swords at a televised debate without any actual breakthroughs. The British Airways crisis and the fall of its parent company’s share value is affecting the FTSE.
The Euro skids on news regarding Greece and Italy. The German newspaper Bild reported that Greece may forego its next bailout payment, but the Greek finance minister, Euclid Tsakalotos, has dismissed the report. In Italy, Mateo Renzi suggested that the next elections should be on September rather than May next year, just like Germany, because “it would make sense from a European perspective.”
Pound Sterling – UK Markets
On Tuesday, the British Pound strengthened against both its main competitors, the Euro and the US Dollar. The Pound gained 0.35% in value against the single market currency, trading at €1.15. The British currency also gained ground against the US Dollar, with the exchange rate between them set at $1.28.
Anxiety over June’s upcoming parliamentary elections in the UK is continuing to build, especially after opinion polls showed that the Conservatives have just a lead of 6% over Labour. Theresa May and Jeremy Corbyn took part in a televised debate with veteran journalist Jeremy Paxman. May confirmed that she would prefer to walk away from the Brexit talks with no deal than to accept a bad deal with the EU. Both May and Corbyn later claimed victory.
The British Airways crisis has hit International Airlines Group’s (IAG) shares. IAG is the parent company for airlines such as Iberia, Aer Lingus, Vuelling etc. IAG’s shares fell by 4%, wiping out £500m of IAG’s market capitalisation. Experts suggest that the compensation bill could hit £100m.
US Dollar – US Markets
The US Dollar rallied against the Euro, increasing in value by 0.25%, trading at €0.89. The US currency took advantage of the uncertainty in the Eurozone, regarding Greece and Italy.
Investors and traders are pricing in the possibility that the US central bank will raise interest rates by a quarter point to 1.00-1.25% at its policy meeting, which will take place on 13-14 June. According to the CME Group’s FedWatch tool, the probability of a rate hike next month stands at just above 84%.
President Trump is back in the US, after his first presidential trip in Asia and Europe. Trump said that his diplomatic efforts were a “home run”, using a baseball term that indicates great success. His return to the US re-ignited concerns about his links to Russia. Trump defended his son-in-law, Jared Kushner, who was, reportedly, considering setting up a secret line of communication between the Trump administration and Moscow, in order to discuss a resolution to the crisis in Syria.
Euro – European Markets
The Euro plunged against Sterling, losing 0.3% in value with the exchange rate set at £0.86. The single market currency also weakened against the US Dollar trading at $1.11. The Euro was hit by reports coming from Greece and Italy.
Reports coming from Germany suggested that Greece threatened to opt-out of £7.5bn in debt repayments due in July, if Brussels blocked a debt deal at the next Eurogroup meeting on 15 June. A Greek government spokesman denied that it was true and said that there will be a solution to the problem. In Italy, former Prime Minister Mateo Renzi said that parliamentary elections, around the time of German federal elections, would reduce market uncertainty. The main Italian political parties are very near to striking a deal on a new electoral law. According to political analysts, an agreement will lead to snap elections. Italian bonds are the worst performers in Europe, hit by the political uncertainty.
Data released on Tuesday morning suggest that the French economy is growing faster than it was first estimated. The French GDP expanded by 0.4% in the first quarter of 2017, twice as fast as the UK’s. Consumer confidence in France is rising at its fastest rate in a decade.
An EU Commission report suggested that business and consumer confidence in May are down from April’s near 10-year high mainly because of weaker services sentiment. Data coming from the German states of Hesse, Bavaria, Saxony and Brandenburg indicated that inflation is clearly down compared to April’s readings.
Other Currencies – Highlights
The Pound remained stable against the Australian Dollar trading at 1.72 AUD. A rebound in the price of oil ahead of OPEC talks on Thursday has helped commodity-linked currencies such as the Aussie. The number of Australian home building permits rose 4.4% in April from March. House market analysts suggest that housing construction is peaking and they expect that house prices will not be increasing, in the same way as they do now, over the coming months.
The exchange rate between the Pound and the New Zealand Dollar is at 1.81 NZD. The Kiwi remained strong despite the bad news coming from the construction sector. New Zealand residential building consents dropped by 7.6%, but the Statistics New Zealand attributed the drop to the timing of the Easter holiday. The slide had limited impact on the market.