Sterling Solid Against US Dollar and Euro
The Pound has resiliently held on against the US Dollar but there’s doubt that Sterling can hit the $1.30 level it keeps nearly reaching. The Pound’s been given a boost for the last few weeks by expectation that the Conservative party is likely to win the snap general elections in June. This week, the Pound is expected to stay strong against the Euro, which is also performing well against the US Dollar.
The US Dollar is still being weakened by disappointing data releases as well as continued geopolitical tension. On Sunday, North Korea said that the US mainland is within its target range as it fired its first ballistic missile that is capable of carrying a heavy nuclear weapon.
Pound Sterling – UK Markets
The Pound is a bit higher against the Euro, ahead of April’s Consumer Price Index (CPI), coming out on Tuesday morning. Sterling is trading at €1.18, boosted by the latest exclusive opinion poll for the Telegraph conducted by the Opinion Research Business International (ORB International). The poll predicted that Conservatives will win with a majority of 130-150 MPs at the 8 June elections. However, analysts expect that the coming CPI report will slow down the British currency due to expectations that inflation will increase. The latest forecast shows the CPI climbing up to 2.6% in April, jumping from 2.3% in March.
Overall, the Pound has been weak since last June’s Brexit referendum. However, the Brexit vote has turned out to be beneficial for UK-based Public Limited Companies (PLC). According to the Profit Watch UK study from The Share Centre, UK-listed companies reported a collective increase of their revenues for the first time in four years, hitting £1.1trn for the first quarter of 2017. The fall of the Pound has provided good business opportunities for exporters, mining companies and banks. In the mining sector, companies reported higher revenues, up 5.9% reaching to £174bn. The profits in the bank sector increased by 9.6% to £168bn.
Sterling is reaching the edge of the $1.30 barrier against the US Dollar, and on today’s market is trading at the highest margins of $1.29. The Pound bounced back after dropping to a week-low at $1.28 on Friday, weakened by the Bank of England’s (BoE) quarterly inflation report. The strong start of the British currency is due to the latest polls that give Tories a steady majority in the British parliament and the weak results of the US Consumer spending data, announced last week. The consumer spending data accounts for around 60% of the GDP and, if US consumers are spending less, some analysts fear that that will shrink the GDP.
US Dollar – US Markets
The US Dollar has weakened slightly against the Pound and the Yen due to the US retail sales’ poor results in April and the news of yet another missile test by North Korea over the weekend. The US Dollar is lower against Sterling at £0.77 and has dropped down by 0.1% against the Yen at ¥113.28. However, according to many analysts, the pressure against the American currency will not last. “Overall, we see the dollar trading in its recent ranges for the time being, with investors focused on next month's FOMC [The Federal Open Market Committee] meeting," Mitsuo Imaizumi, chief foreign-exchange strategist for Daiwa Securities, commented.
The US Dollar rose by 0.1% at €0.91 against the Euro, compared to yesterday’s exchange rate. However, the Dollar is still performing lower than last week (€0.92).
Euro – European Markets
The Euro slightly increased its value against the US Dollar, with the exchange rate at $1.09 on Monday morning. The single currency is getting stronger because traders were disappointed after recent US inflation figures and retail sales’ results. Analysts suggest that there is a possibility for the Euro to break the $1.10 barrier later in the week.
Markets seem to have appreciated the victory of the Christian Democratic Union (CDU) party in the North Rhine-Westphalia elections, which are viewed as a rehearsal for September’s German national parliamentary elections. Angela Merkel, who is leading the CDU, dealt a severe blow to her Social Democratic rival for chancellorship, Martin Schulz. Merkel, who is in power since 2005, has lead Germany’s economic revival, and is seen as significant for European Union’s political stability.
Other Currencies – Highlights
The Australian Dollar retrieved some of the losses it suffered against the Pound in the previous week. The rate is at 1.74 AUD. The Aussie strengthened on news that China will launch a global construction mega-project, which is expected to cost $900bn. Metal prices are advancing, affecting the value of all commodity-linked currencies.
The New Zealand Dollar also gained a bit of ground against the Pound, with the exchange rate set at 1.87 NZD. Like the Aussie, the Kiwi is considered a currency that is affected by changes in commodity prices. The raw material prices were driven upwards after the president of China, Xi Jinping, announced that he will launch an extraordinary and “visionary”, as Philip Hammond suggested, infrastructure project. Another reason for the Kiwi’s surge is the stronger-than-expected retail sales data for the first quarter of the year.
Sterling underperformed against the Canadian Dollar setting the exchange rate at 1.76 CAD. The Loonie gained ground on news that Saudi Arabia and Russia reached an agreement to extend oil output cuts until March 2018. The Canadian Dollar was boosted, hitting its highest level against the US Dollar since April 28.