Good morning.

While Sterling was hit on Friday after election polls showed that the gap between Conservatives and Labour was narrowing, with Tories being ahead by only 5%, it appears that it has slightly recovered and is starting the week around $1.2830 against the US Dollar. This week is relatively quiet in terms of economic news with manufacturing PMI due on Friday. The Pound will be affected by political news ahead of the 8 June general elections. Today, the last Monday of May, UK and US markets are closed for the Spring Bank Holiday and Memorial Day respectively.

The US Dollar remains steady as markets shrugged off news of North Korea’s latest missile test. During the weekend’s G7 meeting, Trump eased his position on trade and promised to fight protectionism, but he refused to endorse the Paris Agreement on climate change. The EUR/USD pair might be affected by today’s ECB President Mario Draghi’s speech on the economy and monetary developments before the Economic and Monetary Affairs Committee in Brussels, Belgium. Investors remain cautious in relation to concerns regarding the Trump administration and reports that Jared Kushner attempted to establish “back channel” communications with Russia before Trump became President.

Despite the absence of activity, in the US, the main focus will be the upcoming US payrolls report due on Friday, which, if it’s bad, it might reduce the possibility of a June hike. 

Pound Sterling – UK Markets

On Friday, Sterling hit a two-month low against the Euro with the exchange rate between them set at €1.14. Analysts are watching the UK election polls, as the latest YouGov poll showed that the gap between the Tories and the Labour got narrower. 

On Monday morning, however, Sterling pushed higher recovering from the three-week low of $1.27 it hit on Friday.

Despite risk-off trades, the GBP/USD pair is steadily recovering from renewed USD selling across the board and is expected to rise above the $1.28 barrier.

With both UK and US markets closed on Monday, traders would be watching any new UK election polls that might impact on the Pound. 

US Dollar – US Markets

The US Dollar gained on Friday after US first-quarter GDP growth defied expectations and was revised higher. The greenback is holding steady today.

The US Dollar Index (USDX, DXY—the index of the value of the US Dollar relative to a basket of foreign currencies—was higher 0.1% to 97.486 on Monday.

President Trump is back in the White House after his first international trip and is facing more troubled days ahead. On the one hand, his son in law, Jared Kushner is being investigated for his role in the ongoing Russian probe, while, on the other hand, he will need to deliver on his promises of a “Yuuuge” tax reform.

The US Federal Reserve Bank of San Francisco’s president and chief executive John Williams said on Monday, during the 2017 Symposium on Asian Banking and Finance, that the Fed wants to take “a gradual approach” to interest rate hikes and continue to be “very clear, transparent, and open about how we’re making decisions.” Two more interest rate hikes are expected in 2017. At the Federal Open Market Committee meeting on 13 and 14 June, the Fed is expected to raise interest rates.

Euro – European Markets

Early on Monday, the Euro was lower against the US Dollar as the greenback remained strong after US President Trump’s latest comments on the “huge tax reforms.” 

However, it managed to jump and is currently trading around the $1.116 region. Investors are looking forward to the President of the European Central Bank (ECB) Mario Draghi’s speech before the Committee of Economic and Monetary Affairs (ECON) of the European Parliament in Brussels. He is expected to repeat that the Eurozone economy remains strong, while warning about inflationary pressure. It is possible that the Asset Purchase Scheme will be withdrawn but there won’t be any increase in rates for a while yet. Draghi’s comments might boost the EUR/USD pair, but amidst holiday thin trading and no major market moving economic releases, it remains to be seen if the pair can reclaim the $1.12 handle. 

The EUR/GPB moves away from Friday’s two-month highs and is on the brink of breaking below the £0.87 it touched on Friday. 

German Chancellor Angela Merkel, after the weekend’s G7 summit in Italy, said in a speech that Europe can no longer rely upon its UK and US allies and must continue to fight for its European future. She pledged that Germany would help France defeat its unemployment problems.

Other Currencies – Highlights

Markets are generally quiet since Chinese, British and American markets are closed for National Holidays.  

The South African Rand (ZAR) lost its recent 1.8% gain after South African President Jacob Zuma survived another motion of no confidence at the African National Congress (ANC) national executive committee meeting. Zuma addressed his critics on Sunday and asked them to stop attacking him in public.

The JPY increased at 111.30 despite North Korea’s recent missile launch since markets are getting used to such tests.

Have a great day.