Pound Stable Before General Election
The world’s attention has been shifted to tomorrow’s parliamentary elections in the UK. The result is expected to affect the future of Britain and its citizens. Theresa May’s bid to strengthen her mandate is in question since some polls are showing that the gap between the Tories and Labour has narrowed significantly. When May called for a snap election, a Conservative landslide win seemed inevitable, but a series of political U-turns and the fear from the recent terrorist attacks have made the outcome unpredictable.
In the US, James Comey’s testimony, tomorrow, before the Senate is eagerly expected by the political and financial world. Comey will face questions about whether Donald Trump tried to persuade him to stop an investigation into improper contacts between a top national security adviser and Russian officials. James Clapper, the former US director of national intelligence, said that the events in Washington are more serious than the Watergate scandal.
Pound Sterling – UK Markets
Today, the Sterling to US Dollar exchange rate hovered around the $1.29 mark, with very minor fluctuations. The Pound gained a bit of ground against the Euro with the exchange rate set at €1.14.
Tomorrow’s parliamentary elections dominate the news, since the battle will certainly affect the future of Great Britain. According to some polls, Labour has been gaining on the Conservatives. Jeremy Corbyn’s party seems to have narrowed the gap with the Tories, but it is uncertain how much, since different polling companies are forecasting totally different results. The pollsters are still giving Theresa May a clear lead, but if some of the poll results are replicated on election day, she could gain a much smaller majority than anticipated.
Analysts at ING suggest that the worst-case scenario for the Sterling is a hung parliament on Friday morning. In case the Conservatives fail to gain the majority, the ING report says that “a stable coalition should be formed before markets can start making any sweeping assumptions about changes to Brexit policy.”
US Dollar – US Markets
The US Dollar rallied against the Euro, gaining 0.2% in value, with the exchange rate between the two currencies set at €0.88. The spotlight is on former FBI director, James Comey, testifying tomorrow before the Senate’s Intelligence Committee.
President Donald Trump fired Comey from office one month ago, this being only the second time in US history that an FBI director has been dismissed. Comey is expected to be asked by Senators about his private discussions with Trump regarding the FBI investigating his campaign and the relations between former national security adviser Mike Flynn and Russian officials.
Comey’s testimony could have a minor impact if he doesn’t reveal important information, or, be the beginning for Donald Trump’s impeachment, if Russian connections are confirmed. Investors are worried the former FBI Director’s testimony will create even more political uncertainty, which will certainly weaken the US currency and the government’s ability to deliver economic reforms.
Euro – European Markets
The Euro dropped against the US Dollar and the Pound, trading at $1.12 and £0.87, respectively. Breaking news from Spain regarding the rescue of Banco Popular by Banco Santander shook the Eurozone.
Banco Popular had lost more than half of its value in the last few days as investors were growing fearful over the bank’s ability to face its capital shortfall. As a result, Moody’s, a credit rating agency, downgraded the bank forcing the European Central Bank (ECB) to trigger the rescue by Banco Santander. Banco Santander saved Banco Popular from collapse, after buying it for just €1!
Banco Santander’s officials announced their plan to raise €7bn in new capital to fund the rescue of Banco Popular. Investors reacted sending the Banco Santander’s stock tumbling at the start of trading in Madrid. The Spanish finance minister, Luis de Guindos, welcomed the rescue saying that there is no danger of “credit risk contagion” to other Spanish banks.
Other Currencies – Highlights
Sterling slumped against the Australian Dollar, losing 0.5% in value and trading at 1.71 AUD. The Aussie strengthened on news that Australia’s economy grew 0.3% in the first quarter of 2017. The Australian Bureau of Statistics (ABS) reported that the country is in its 103rd successive quarter of recession-free economy. The finance sector is growing at an annual rate of 4%. The figure provoked comments by the Australian Bankers’ Association, arguing that the new government tax on major banks is contrary to the national interest. The last time that Australia recorded negative growth was in March-June 1991.
The New Zealand Dollar increased its value against the Pound, trading at 1.79 NZD. The Kiwi also performed well against the US Dollar, recording a 3-month high with the exchange rate rising above $0.72 for the first time since the beginning of March. Economists suggest that the Kiwi’s gain in recent months is led by broad-based strength across most of New Zealand’s export commodities. Grant Spencer, the new acting governor of Reserve Bank of New Zealand (RBNZ) signed a renewed policy targets agreement with finance minister Steven Joyce, which will take effect on 27 September.