Will Sterling’s Rally Last?
The pound’s improved exchange rate isn’t likely to last until the end of April, so now might be the best time for you to make your Sterling transfer. Sterling’s current strength is caused by other currencies, especially the dollar or euro, weakening because of global political uncertainty. Any negative news regarding Brexit negotiations will probably weaken the marketplace confidence supporting Sterling today.
The US dollar is rebounding from a 5-month low, after US Treasury Secretary Steve Mnuchin commented that a strong dollar would be good for the economy in the long run. It’s still subdued, however, after President Trump said earlier that he preferred a weak dollar.
Pound Sterling – UK Markets
The pound had a good run last week because the US dollar’s week didn’t go nearly as well. President Donald Trump’s remark that he would prefer lower interest rates and a lower dollar effectively knocked the dollar down, which lifted the pound. This trend will continue through much of the month as there’s still a great deal of political uncertainty across Europe, after the Turkish referendum and ahead of the upcoming first round in the French elections. The Asian and US markets are still nervous due to the rising tensions after North Korean leader Kim Jong Un has ignored warnings from China and the US to stop his missile tests.
There’s no economic data due for release until Friday this week. The Retail Sales figures might weaken the pound, especially if they continue showing that British consumers simply aren’t spending as they did last year. On Thursday Bank of England governor Mark Carney is scheduled to give a speech. It’s unlikely that any comments he makes will lend Sterling any further support and he’ll be cautious to avoid saying anything that could have a negative impact on the pound.
In other UK news, British wine production is at a record high level. Over the next 12 months an additional 1 million grapevines will be planted which will yield an additional 2 million more bottles of wine a year. A report by the English Wine Producers trade body shows that the number of vineyards planted over England and Wales has increased by 135% over the last 10 years. Sales of domestic wine are steadily increasing as are exports, especially of sparkling wines. Large French champagne firms Tattinger and Vranken-Pommery Monople have begun planting vines in Canterbury and Hampshire, giving British grown grapes additional market prestige. All indications indicate that British bubbly is set to become the next big trend in international wine circles.
US Dollar – US Markets
The US dollar had been steadily dropping until Trade Secretary Steven Mnuchin commented yesterday that he sees a strong dollar being helpful for the US economy over the long term. The dollar’s descent began after the US bombed Syria. The move was seen as an attempt to send a strong message that failed to deter North Korea from another ballistic missile test. The move also enraged Russia who vetoed a resolution condemning the alleged 4 April chemical attack, protecting Syrian President Bashar al-Assad. The repercussions of President Trump’s first foreign policy actions have unnerved global markets because they increase the chance that the US may trigger a war in Asia.
The dollar had dropped further last week when President Trump said he’d rather have lower interest rates. This was because he’ll be in the position of appointing as many as 5 of the Federal Reserve’s 7 positions during his tenure as president. He’ll be in a position to hand pick Federal Reserve (Fed) chairmen and governors, so he’ll naturally choose those with similarly ‘dovish’ views like his. This isn’t necessarily what’s best for the economy, but what might be worse would be for Trump to politicise what’s traditionally been a politically independent central banking system. He recently changed his mind regarding Fed Chair Janet Yellen, whom he promised to replace with a Republican party member but now says he likes.
Euro – European Markets
The euro has hit a 6-week low, weakened by the increasingly unpredictable French election as far-left Jean-Luc Melenchon has shaken up the race on the home stretch. Polls now show Marine Le Pen is tied for the lead with Emmanuel Macron in the first round of the elections on April 23. Analysts at Société Générale predict that the first round of the elections will be quite close. Their poll yesterday showed Marine Le Pen and Emmanuel Macron tied with 22% of the vote. Francois Fillon is in a very close third place with 21% of the ballots. Melenchon appears to have 18% of the vote, but he’s gaining momentum. The International Monetary Fund’s Managing Director Christine Lagarde said today that a win by either Le Pen or Melenchon threatens the euro.
According to HSBC analysts, inflation across the Eurozone will be at 1.5% in June, falling lower afterwards. They expect that the European Central Bank (ECB) will try to sidestep any market speculation that they’ll raise interest rates soon by waiting until the last quarter of the year to indicate a willingness to be more flexible with monetary policy. It’s expected that the ECB will gradually be winding down their bond buying programme so that by the last quarter of 2018 the central bank will no longer be purchasing additional assets in an effort to help the EU economy recover.
Other Currencies – Highlights
The Turkish lira was at a 2-month high ahead of Sunday’s referendum vote, due to expectations that the President would win. As the votes were tallied, showing that he only won by the narrow margin of 51%, the lira fell. This indicates ambivalence about President Recep Tayyip Erdogan’s plan to re-write Turkey’s republican constitution which will fundamentally alter parliamentary powers. This is controversial, because, by transforming the country’s governing system into a presidential democracy, the president’s power is dramatically increased. Erdogan’s win should help restore political stability which Turkey hasn’t seen since the 15 July 2016 coup attempt. Last week, Turkey sought to punish 150 of the officers accused of attempting to overthrow the government by seeking 3 consecutive life sentences for each officer charged. Thousands of academics are among the many Turks who were jailed or purged following the coup.
Turkey’s bid to join the EU is at risk after President Erdogan sparred with EU leaders when his attempt to have his ministers campaign for him in Holland was rebuffed. One of the principal reasons Turkey would benefit from EU membership is that EU will allow Turkey to modernise the existing trade agreement that’s been in place since 1996. That agreement fuelled a massive expanse in Turkish industry, that’s highly restrictive. It covers industrial goods trade exclusively, which have skyrocketed from a total value of €28 billion when the agreement was signed, to €145 billion, last year. During this period, Turkey’s GDP has quadrupled. Whether it joins the EU or not, Turkey wants a reformed customs union agreement that includes increased agricultural export agreements as well as the right to export services, including e-commerce.