Sterling Falls Ahead of Queen’s Speech
Today, Sterling briefly fell below the $1.26 mark for the first time in the last two months. It has weakened because of the ongoing political uncertainty in the UK and the Governor of the Bank of England (BoE), Mark Carney, appearing reluctant to raise interest rates. The Queen’s speech will be delivered later today with Theresa May still not having secured a majority, since the talks with the Democratic Unionist Party are progressing slow. According to media sources, the Queen’s speech will focus on Brexit and counter-terrorism. Any mentioning of controversial policies seems to have been stripped because of the government’s fragile position.
The drop in Brent crude oil price to a seven-month low, because of signs of a global oil glut, has made oil traders lose faith in the ability of OPEC to prop up prices. Oil producing countries have recently agreed to extend production curbs until March 2018, but American shale oil firms raised their own output, thus covering the deficit.
Pound Sterling – UK Markets
Today, the Sterling to US Dollar exchange rate fell below $1.26 for the first time since April, when Theresa May called for a snap general election. The British Pound also dropped against the Euro trading at €1.13. According to data published by the Office for National Statistics (ONS), the UK budget deficit fell in May. The UK borrowed £6.7bn to balance its books compared to £7bn in May 2016. Britain’s national debt amounts to 86.5% of the annual GDP.
The British currency weakened in the aftermath of Mark Carney’s remarks yesterday, who said that the BoE won’t pick up its benchmark interest rate any time soon, and the political uncertainty resulting from failing to secure a Tory-DUP deal.
Damian Green, who is Theresa May’s deputy, said that talks with DUP officials are continuing, but it may take more time to strike a deal. According to media sources, DUP party members have said that “the DUP can’t be taken for granted” and accused the Conservative leadership that they are allowing their backbenchers to show disrespect towards the small Northern Irish party.
US Dollar – US Markets
The US Dollar retained its value against the Euro, trading at €0.89. A new drop in oil prices to seven-month lows and the acceptance of some A-level Chinese shares into MSCI’s Emerging Markets Index dominated news coming from the US markets.
The price of Brent crude oil per barrel dropped below $46 for the first time in the last seven months because of signs showing that the market is oversupplied. According to experts, one of those signs was Libya tripling its oil production in the last year. Libya is an OPEC member, but it is exempt from any production cut deal. Saudi Arabia also announced higher oil export data yesterday and new US oil inventory figures, due to be released later in the day, may affect the oil price again.
US index provider MSCI decided to add some Chinese shares to its Emerging Markets Index. This was hailed as a symbolic win by China, which had already made three failed attempts. MSCI has set out a list of liberalisation requirements before it would consider adding more Chinese shares to its index.
Euro – European Markets
The Euro remained stable against the US Dollar, trading at $1.11. France is the centre of attention today with three ministers of the French government quitting because they are targets of justice investigations.
Francois Bayrou, the Justice minister, is one of those leaving the French government. Bayrou is the leader of the centre-right MoDem political party that was a key ally to Macron’s En Marche!, during the recent presidential and parliamentary elections. Bayrou and Defense minister and MoDem member, Sylvie Goulard who also quitted, are targets of an investigation into alleged fake European Parliament (EP) assistant jobs. Marielle De Sarnez, the junior European Affairs minister said that she is also leaving her post.
Emmanuel Macron, thanks to En Marche! majority in the parliament, doesn’t need MoDem votes to pass legislation. However, Macron’s scheduled ministerial reshuffle is now further complicated because he may have to include Republican members in his government.
Other Currencies – Highlights
Sterling remained stable against the Australian Dollar, managing to recover some of yesterday’s losses and trading at 1.66 AUD. Westpac published its Westpac-Melbourne Leading Index, which is a forward-looking indicator on how the Australian economy is likely to perform in the next few months. As Matthew Hassan, senior economist at Westpac, said “the Leading Index has been pointing to above-trend momentum since late last year, but the update suggests the growth pulse is moderating, heading into the second half of 2017, highlighting downside risks to the 2018 growth outlook.” Westpac’s analysts express the opinion that the Reserve Bank of Australia (RBA) will leave interest rates unchanged in the remaining months of the year and throughout 2018.
The British Pound slumped against the New Zealand Dollar, trading at 1.74 NZD. On Thursday, the Reserve Bank of New Zealand (RBNZ) is expected to publish its policy assessment. Analysts at Global FX Capital (AmpGFX) suggest that the RBNZ will maintain its dovish approach regarding interest rates and the Kiwi’s strength against other currencies. They believe though that RBNZ policymakers should be concerned of the fact that imports rose by 6.5%, on a yearly basis, while exports were reduced by 1.4%, according to published data.