Sterling Volatility Ahead of Election Results
The day for the parliamentary elections that Britain was waiting for has come. Today, British citizens vote to decide who is the best for leading the country into a challenging future. Political analysts have said that these elections may be the most important in the UK’s history after the WWII. Theresa May asked for a strong mandate in order to have the power to make Brexit a success. In the beginning of May, polls were predicting a landslide victory for the Tories, but Labour seems to have narrowed the gap. The polls opened at 7am, this morning, and will close at 10pm, tonight.
In the US, top news is James Comey testifying before a Senate Committee, regarding the alleged interference of president Donald Trump in the FBI investigations. Comey, who is the former FBI director, published a statement in which he says that Trump asked him to drop the FBI investigation into former national security adviser, Michael Flynn, and his links with Russian officials. If Trump is found to have obstructed justice, this might lead him to an impeachment hearing.
Pound Sterling – UK Markets
Today, the British Pound performed well against its two main competitors, the Euro and the US Dollar. The Pound rallied against the Euro with the exchange rate between the two currencies set at €1.15. Sterling to US Dollar exchange rate recorded a two-week high set at $1.29, but it remains volatile.
The reason for the Pound’s rise is a series of opinion polls, which suggested that Theresa May is heading to 10 Downing Street with a larger majority. A YouGov poll published yesterday gave the Tories a 7-point lead over Labour in today’s parliamentary elections. Traders have said that “the higher the margin Conservatives win by, the higher the Pound goes from here.” All five polls, published yesterday in the UK, suggest that Theresa May will increase the small majority she inherited from David Cameron last year. The polls were conducted after the deadly terrorist attack in London on Saturday.
Investors and traders are cautious because of the Brexit referendum result last year and because of Labour seemingly narrowing the gap with the Tories during the election campaign. As market experts say, if Theresa May wins a thin majority it will be a major negative surprise.
US Dollar – US Markets
The US Dollar retained its value against the Euro with the exchange rate between them set at €0.88. It is possible that the US currency will be affected by James Comey’s testimony before the Senate later today, regarding Donald Trump’s interference with FBI investigations.
The opening statement of the former FBI director’s testimony that was published earlier, reveals that Donald Trump pressed him to stop investigating into Russia’s meddling in November’s presidential election. In his statement, Comey says that Trump asked him if he wanted to keep his job as the FBI director, before demanding his loyalty.
Comey says in his statement that, in February, Trump asked him to drop an investigation into former national security adviser, Michael Flynn, and his alleged contacts with Russian officials. Comey’s testimony before the Senate’s Intelligence Committee is one of the most anticipated hearings in modern history. If Trump is found to have obstructed the investigations, the US law will declare this an offense that could lead to impeachment hearings.
Euro – European Markets
The Euro slumped against the US Dollar, losing 0.2% in value with the exchange rate set at $1.12. A news report that the European Central Bank (ECB) could lower its inflation forecast through 2019, due to weaker energy prices is a factor for the single market currency’s underperformance.
According to a survey, published by Eurostat, the Eurozone’s economy grew faster than expected at the start of this year. The Eurozone’s GDP expanded by 0.6% in the first quarter of the year. Germany’s economy expanded by 0.6%, the French and the Italian by 0.4%, while some eastern EU economies grew by over 1%. The Eurozone economy seems to be accelerating, helping to bring unemployment down to the lowest levels of the last decade. An ECB meeting later today is unlikely to signal any major tightening of economic policy ahead.
Other Currencies – Highlights
The Australian Dollar lost a bit of ground against the Pound, trading at 1.71 AUD. The Australian Bureau of Statistics (ABS) announced that the country’s trade surplus, for April, shrank to $0.55bn versus the $1.95bn that was expected. A $2.5bn slump in coal exports as Cyclone Debbie disrupted mining and shipping operations was the main reason for the decline. Experts said that the slump is only temporary as flood affected rail lines to key coal ports have already returned to service since mid-April.
The New Zealand Dollar gained 0.1% in value against the Pound driving the exchange rate upwards for a second consecutive day at 1.79 NZD. According to Morgan Stanley’s investment bank, the Kiwi belongs to a list of currencies worth watching for. The Kiwi’s positive outlook is supported by a strong economy, a healthy labour market and a rising demand for the country’s exporting products. The analysts at Morgan Stanley, which is one of the most important investment banks in the world, suggest that if inflation continues to rise, the pressure on the Reserve Bank of New Zealand (RBNZ) to raise interest rates will also increase. A rise in interest rates would support the Kiwi as high interest attracts inflows of more capital.