The Pound is Steady as Macron Hopes Boost Euro
The Pound is holding steady against all major peers except the Euro which is still rising on expectation that French Presidential front-runner Emmanuel Macron will win the election in two weeks. There’s very little data up for release from the UK this week that can bring the pound back up to the stronger position it was in before the Euro’s rise. Sterling is expected to strengthen in May, due to confidence that Prime Minister Theresa May will consolidate the Conservative Party’s power in the 8 June general election.
The US dollar has weakened to the Euro prior to a series of geopolitical developments coming into focus later this week. Friday is the biggest risk day for the dollar as the US’s GDP and Trump’s budget plans will be released. Hopefully, the latter should keep the government from a looming shutdown.
Pound Sterling – UK Markets
The Pound remained stable against the Euro at €1.17 on Tuesday morning, after yesterday’s significant drop due to the result of the first round of the French presidential election. A note circulated by Deutsche Bank to its customers suggests that the risks of the United Kingdom crashing out of the European Union have been averted.
Deutsche Bank’s analysts described the announcement of the 8 June election as a “game changer”. In the note, it is said that a strong Conservative government will enable Theresa May to make the necessary compromises with the EU. JP Morgan, in Monday’s client brief, said that recent political developments on balance are positive, but they choose to remain cautious in regards to the Pound, at least for now.
The announcement of data on Public Sector Net Borrowing shows that the UK borrowed £52bn in the 2016-2017 fiscal year, slightly above the £51.7bn predicted in last month’s budget, but 28% lower than the previous year. Corporate tax revenues for 2016/2017 hit a record £55.7bn, well above the pre-crisis peak for the first time in years.
On Tuesday, the FTSE 100 index gained a little ground (0.13%) in the opening, keeping up Monday’s momentum, which had sent it 2% higher.
US Dollar – US Markets
The US Dollar lost 0.12% of its value against the Pound on Tuesday morning. The Pound to US Dollar exchange rate was at $1.28. Analysts suggest that they expect the Pound to gain more strength because of optimism about the UK’s June election.
The US Dollar is expected to be affected by the announcement of the new tax reform by Donald Trump’s administration. The president has repeatedly said that the new economic policies will create the necessary conditions for economic growth. Investors are also waiting to hear more about the massive tax cuts that Trump has promised to reveal this week.
The US Dollar to Euro exchange rate was at €0.918, with the greenback losing 0.22% of its value against the single market currency. A report from Société Générale suggests that, after the French elections and Thursday’s ECB monetary policy meeting, the focus will switch towards the EU/US investment imbalance, which is currently the biggest in the global economy.
Euro – European Markets
The risky political climate in Europe and fears surrounding the future of the Euro have receded after Emmanuel Macron won the first round of the French elections. The single market currency has stabilised this morning, opening at $1.08. According to analysts, this tendency will continue and the Euro will exchange between $1.08 and $1.10 until 7 May, when the second round of the French elections takes place.
However, there is another event that is expected to influence the Euro this week. On Thursday, 27 April, the European Central Bank will announce if it will retract its stimulus programme, after pumping billions of Euros into the Eurozone economy. In December, last year, the bank announced that the asset purchase programme would continue for another nine months, but the value of the bond purchases would shrink from €80bn to €60bn. Still, the experts don’t expect the ECB would take any drastic decisions this week. As Giles Moec, Europe Economist with Bank of America Merrill Lynch Global Research says, “The policy debate could get fierce from June".
The National Bank of Belgium (NBB) is announcing its Business Climate Index today. The index measures changes in the level of confidence in business conditions. Despite being one of the smallest European economies, Belgium is a good example for assessing business confidence levels in the continent. The data is collected through a survey with the participation of 6,000 businesses which rate the current level of the business conditions and their expectations within the next six months. The last time the wide survey showed a score of -1.6 and the results this time are expected to be very similar: -1.4.
Other Currencies – Highlights
Today it’s a public holiday in Australia so there aren’t any big movements in the market. The Sterling to Australian Dollar rate remained stable since yesterday at 1.69 AUD. Changes in the rates are expected tomorrow with the announcement of the Australian CPI for the first quarter of the year. The experts are foreseeing an increase of 0.6% compared to the previous quarter, and 2.2% from the same time a year ago.
The Sterling/NZD pair is strong and is currently trading between 1.80-1.90 NZD. According to analysts, this stability will continue in the next days.