Will Trump’s Tax Reforms Pinch the Pound?
Sterling has withstood the surging euro and weaker US Dollar because of recent good fiscal news and the expectation of a better political position for the government. Philip Hammond’s talents have yielded the lowest level of government borrowing since 2008. And Prime Minister Theresa May’s expected to be bargaining from a position of consolidated power if the Tories take parliament, as expected.
The US Dollar is waiting patiently to see President Trump’s tax reform plans today. He backed down from his promise to immediately build the Mexican border wall. The Sterling to US Dollar rate could fall sharply today if investors approve of Trump’s long awaited tax reform plans.
Pound Sterling – UK Markets
This morning the Pound has slid down by 0.3% against the Euro but remained at €1.17, the same value it was in the beginning of the week. On Monday, due to Emmanuel Macron winning the first round of elections in France, Sterling lost its momentum since last Tuesday, dropping down to €1.18- €1.19.
Against the Dollar, the British currency also remains stable, keeping its 2% increase since Monday. This morning Sterling opened at $1.28.
The Pound remained steady due to the announcement that the UK’s deficit has decreased significantly since the financial crisis. According to economic data, Britain has borrowed £52bn in the 2016-2017 financial year, a number corresponding to last month’s predictions by analysts. This is £20bn less than the year before and the lowest level since 2008.
In the upgraded forecast report, analysts from Deutsche Bank predicted that the correlation of the GBP/EUR pair will remain stable until 2019, if Theresa May and the Tories manage to secure a majority in the upcoming snap elections. According to Deutsche Bank, if the party fails to secure it, the Pound’s strengthened position is at risk. As Oliver Harvey, a Macro Strategist at Deutsche Bank said, “The Conservative Party must first secure a large enough majority to allow PM May to negotiate from a position of domestic strength and reduce the influence of fringe elements in parliament.”
US Dollar – US Markets
The US Dollar has been trading lower against the Euro and the Pound. It continued sliding after the release of mixed data about the U.S. economy. According to the latest report, the Consumer Confidence Index has dropped from 122.5 in March to 120.3 this month. In another report, the US property market has risen to an eight-month record high, which enhances optimism about the US economy strengthening. However, the US index, which measures the position of the Dollar against other six major currencies, has dropped down to 0.34%.
The markets are anticipating President Trump’s tax reform proposals which he promised to announce on "Wednesday or shortly thereafter”. As he said last Friday, the plan includes a "massive tax cut" both for businesses and individuals.
Euro – European Markets
On Wednesday, the Euro remained steady against the US Dollar at $1.09. The single market currency appears to have entered a phase of consolidation, slightly away from the five-month peaks it reached at 1.0951 in the US last session. Emmanuel Macron’s win in the first round of the French presidential elections seems to have been fully priced in by the markets.
The French Consumer Confidence data that was released this morning met the forecasts. The index is at 100 units, the best since October 2007, suggesting that political uncertainties had minor impact. The data also shows that unemployment concerns are at their lowest level since mid-2008.
Investors and traders are waiting to hear what the ECB will announce on Thursday, regarding its stimulus multi-billion program. A hint of some form of a normalising policy by Mario Draghi may push the Euro above $1.10, but analysts believe that the ECB will re-evaluate the future of the programme, after the second round of the French presidential elections and before the 8 June ECB meeting.
Other Currencies – Highlights
Sterling to Australian Dollar exchange rate crossed the threshold level at 1.70 AUD. The release of the Australian Q1 CPI report revealed a mixed picture of consumer spending, which took a toll on the Aussie’s value.
Sterling strengthened against the New Zealand Dollar by 0.6%, hitting an 8-month high at 1.85 NZD. According to analysts, Sterling will extend its gains against the Kiwi, in the next days, with New Zealand’s currency being the worst performer among the G10 currencies.
Sterling lost small ground (0.18%) against the Canadian Dollar at 1.74 CAD. The Canadian Dollar value is expected to be affected by the release of the retail sales and GDP data. The Canadian currency lost 1% of its value to its US counterpart, after Trump’s announcement that the US will impose a 24% import duty on softwood imports.