Sterling Slumps on UK Election Fears
Sterling has slumped against the Euro and the US Dollar after a YouGov poll, published in The Times, suggested that the Conservatives could be left 16 seats short of an overall majority in the Parliament. Investors and traders are alarmed because of the expectation that Theresa May would secure a large majority. This possibility seems to be slimming day by day and analysts suggest that the British currency will be vulnerable to political updates until June’s elections.
The Eurozone’s inflation data showed a sharp drop to 1.4% in May, as prices returned in normal levels after the Easter holidays. Taking this into account, the European Central Bank (ECB) is not going to risk tightening its monetary policy anytime soon.
Pound Sterling – UK Markets
On Wednesday, Sterling suffered one more blow because of news regarding the UK’s upcoming parliamentary elections. The Pound to US Dollar exchange rate fell below the $1.28 mark, while it was trading close to a 2-month low against the Euro at €0.87.
The trigger for the Pound’s drop was a poll from YouGov that showed Theresa May winning, but falling 16 seats short of a majority. May wants a strong mandate and she used this excuse to justify her decision for the snap elections in June. Political analysts argue that if the Conservatives won’t have the majority in the Parliament, this will seriously jeopardise the Brexit negotiations and cripple the new government.
According to a report released by the Bank of England (BoE), mortgage approvals for house purchases fell to a 7-month low in April. House market analysts believe that house prices won’t rise more than 2% in 2017. A survey made on behalf of the European Commission showed that British consumers were more confident in May for making more major purchases than in April.
US Dollar – US Markets
The US Dollar lost some ground against the Euro. The exchange rate was set at €0.89. Economic data released in the US drove the US government debt prices higher. Personal income and consumer spending rose in line with expectations but the savings rate remained steady.
Westpac’s research analysts said that, unless a shocking event occurs, a hike in interest rates by the Fed is a “done deal”. However, they believe that the US currency is struggling to capitalise on that because of political turmoil in Washington and soft patches of economic data.
On the other hand, analysts at Barclays warned that the US Dollar’s long period of appreciation will come to an end, unless Donald Trump delivers a fiscal boost. The US currency is currently the second-worst performing member of a group of the world’s ten largest currencies. Barclays’ report says that markets bet that the long-awaited tax reform and spending plan won’t be anything like the one Trump had promised during his election campaign.
Euro – European Markets
The Euro rallied against the Pound, taking advantage of the political updates in Britain. The Euro to Pound exchange rate was set at £0.87. The single market currency lost some ground against its US counterpart, trading at $1.11.
The Eurozone’s unemployment rate dropped to an 8-year low 9.3% in April, a bit better than the expected 9.4%. The bad news came from released data regarding the Eurozone’s inflation. Inflation dipped to a 5-month low of 1.4% in May, compared to 1.9% in April. May’s inflation reading is clearly below the ECB’s target rate, a fact that will fuel the ECB’s concerns over its policies.
Benoit Coeure, an ECB executive board member, said that discussions on medium-term Greek debt measures and a new IMF programme are expected to be concluded in weeks. He added that it is essential that the Greek government is committed to the set goals and take the appropriate measures.
Other Currencies – Highlights
The Pound lost 0.3% in value against the Australian Dollar with the exchange rate set at 1.71 AUD. The National Australia Bank (NAB) released data indicating that spending growth on consumption-based goods and services by its customers slowed to 2% for the first quarter of 2017 compared to 3.1% in the last quarter of 2016. NAB’s economists said that these findings reinforce recent official data which also paint a downbeat picture of soft consumer spending growth in Australia.
Sterling weakened against the New Zealand Dollar with the rate between the two currencies set at 1.80 NZD. The Kiwi rose on news coming from the Reserve Bank of New Zealand (RBNZ). RBNZ released the semi-annual Financial Stability Report, which was rather optimistic. RBNZ’s Governor Graeme Wheeler said that the country’s financial system “remained sound”, but he stressed out that “global uncertainty remains elevated.” He added that dairy prices are recovering reducing financial risks to this crucial sector.