Pound Rises as Brexit Talks Begin
The focus falls on the political developments in the UK this week, with Brexit negotiations beginning today. Brexit Secretary David Davis is heading to Brussels today, commencing the first day of the negotiations with the EU at 11:00 BST at the European Commission’s buildings in Brussels. He is expected to say that this will be “a deal like no other in history,” hoping for a “deep and special partnership” with the EU, but highlighting the “long road ahead.” The Pound has risen to $1.28 as traders are watching the events in Brussels.
Financial markets are relieved after French President Emmanuel Macron has secured a large parliamentary majority. This gives him the power to implement his plans and his campaign promises.
In the US, financial analysts will be expecting comments in speeches by the Federal Open Market Committee (FOMC) members about the reasons for the June rate hike, which is, according to some, unjustified by the data. The chief executive officers of the Federal Reserve Bank of New York and the Federal Reserve Bank of Chicago, William C. Dudley and Charles L. Evans, will be giving their speeches later today.
Pound Sterling – UK Markets
Today, Sterling is trading higher against the US Dollar at $1.28. The British Pound was higher against the Euro, and is trading at €1.14. The Pound remains off the seven-month low it fell against the shared currency a week ago due to worries of political uncertainty before the Brexit talks.
The Brexit Secretary, David Davis will be meeting today with the EU’s negotiation team to start the first day of the Brexit negotiations. Davis and the EU’s chief negotiator Michel Barnier will give a joint press conference at the end of the day.
Davis is expected to say: "We want both sides to emerge strong and prosperous, capable of projecting our shared European values, leading in the world, and demonstrating our resolve to protect the security of our citizens. I want to reiterate at the outset of these talks that the UK will remain a committed partner and ally of our friends across the continent. And while there is a long road ahead, our destination is clear - a deep and special partnership between the UK and the EU. A deal like no other in history."
According to European sources, the talks will follow the EU’s desired structure, discussing the future relations between the two parties first, and the free trade deal at a later time.
In a letter, five UK business bodies—the British Chambers of Commerce, Confederation of British Industry, EEF, Federation of Small Businesses and Institute of Directors—are calling for continued access to the European single market during the negotiations and until the final Brexit deal with the EU.
Kit Juckes of the French bank Societe General, doesn’t expect major movements: “The UK position is as clear as mud beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on border controls. Sterling’s probably range-bound. Any rally triggered by ‘soft Brexit’ hopes is probably temporary.”
US Dollar – US Markets
The US Dollar to Euro exchange rate was driven higher, and is trading at €0.89. The US Dollar was lower against the GBP at £0.78.
The chief executive officers of the Federal Reserve Bank of New York and the Federal Reserve Bank of Chicago, William C. Dudley and Charles L. Evans, will be giving their speeches later today as members of the Federal Open Market Committee (FOMC). Evan’s speech might offer some clues about the Fed’s near-term monetary policy outlook and provide fresh impetus to the US Dollar.
Euro – European Markets
The Euro is lower against the Pound at £0.87. The European single currency is also lower against the US Dollar at $1.11, after reaching, earlier in the morning, to $1.12. The pair is declining because the economic calendar is relatively empty today, but there might be volatility at around 12:00 (GMT) when the President of the Federal Bank of New York, William Dudley begins his discussion on business issues in the US.
European markets were boosted after French President Emmanuel Macron won a significant majority in the French Parliament. Macron’s political movement La République en Marche (La REM) party, and its centrist ally, Democratic Movement (MoDem), have secured a large majority in the French parliament, claiming around 350 of the 577 seats available in the National Assembly. Macron’s victory highlights the success of an outsider to politics and someone who, in the words of his Prime Minister Edouard Philippe, has managed to show that the French people “preferred hope to anger, optimism to pessimism, confidence to closing in on oneself.” However, most of the French voters didn’t vote, with a record low turnout of 43%.
The Eurozone construction output for April was released today. France’s building sector performed very well in comparison to the rest of Europe. Eurostat figures show that the French construction output jumped by 3.5% during April. In the Eurozone, output rose by a mere 0.3% month-on-month. Eurostat states: “Among Member States for which data are available, the highest increases in production in construction were recorded in Sweden (+3.8%), France (+3.5%) and the Czech Republic (+1.6%), and the largest decreases in Romania (-7.7%), Italy (-4.1%) and Hungary (-2.6%).”
Other Currencies – Highlights
The Australian Dollar performed well last week and it looks that it would possibly extend gains. Last week the Aussie Dollar wasn’t affected by the FOMC’s news that there would be an interest rate increase, and after US Core Retail Sales and disappointing CPI figures the pair managed to remain bullish. This week there isn’t any significant Aussie news, so any new releases in the US will largely affect the pair.
The NZD/USD pair has managed to hold in positive territory and is trading around the 0.7265-70 band. According to Imre Speizer, Research Analyst at Westpac, the pair will be strong in the week ahead, targeting 0.7280 initially, then 0.7320, if the US Dollar remains week.