Check-Mayte? Corb your enthusiasm
Sterling was confined to narrow ranges yesterday as markets waited for the general election result. The UK currency made headway against the Euro pushing to 1.1550 while there was a test of 1.2950 against the Dollar.
The election exit poll projected that the Conservative Party would be the largest party in the House of Commons but fall short of securing a majority, triggering a sharp decline in Sterling, sliding to lows near 1.2700 (1.7% drop) against the Dollar as the Euro rallied to above 1.1363 (1.65% drop).
Confirmation that the Conservative’s would not gain a majority triggered uncertainty surrounding the outlook, with notable concerns surrounding economic policies and delays to Brexit negotiations. There were also some expectations that the government would be forced into a more conciliatory approach to the EU negotiations which could lead to perceptions of a more favourable outcome, although the initial risk will be for a delay in starting talks.
Sterling found support near 1.2700 as the Euro initially hit selling interest above 1.1363. There will be ongoing uncertainty amid expectations of a further general election within the next few months.
The circus that was James Comey’s testimony meant US traders were glued to TVs and not monitors. Trading ground to a halt in anticipation of a clear indictment of Trump interfering with FBI investigations, or perhaps direct collusion with the Russians. Former lawyer and FBI Director Comey painted a very clear picture but refused to provide a conclusion as the FBI investigation is ongoing and passed that responsibility to the Congressional Intelligence Committee.
The sole US data yesterday, jobless claims, declined to 245,000 in the latest week from an upwardly-revised 255,000 the previous week. The Dollar was able to secure marginal gains as European currencies stumbled.
As expected, the European Central Bank (ECB) left interest rates at 0%. There were no changes to the bond-buying programme with EUR60bn in purchases due to continue until at least the end of 2017. There was, however, a slight adjustment to forward guidance with the ECB effectively ruling out the potential for any further moves to cut interest rates. In the press conference, Draghi was more optimistic surrounding the growth outlook, and the risk to the outlook was now described as balanced compared with previous references to risks being tilted to the downside.
Growth forecasts were nudged higher while the inflation forecasts were cut with the 2018 projection reduced to 1.3% from 1.6% previously. Draghi was more optimistic overall but reiterated that the bank needed to be confident over a sustainable increase in inflation before adjusting monetary policy. The lack of more hawkish rhetoric and no comments on any potential tapering triggered a fresh round of profit taking on the Euro, which declined to test the 1.1200 area against the Dollar.
EURUSD is being dragged lower by the sell-off in Pound as investors fear a hung parliament in the UK will be bad for both sides involved in the Brexit process. The currency pair hit a nine-day low of 1.1180.
Data To Watch:
7:00am EUR Exports (Mom), Trade Balance s.a. (Apr), Imports (MoM) (Apr).
9:30am GBP Consumer Inflation Expectation, Industrial Production (Mom) (YoY) (Apr), Industrial Production (YoY).
1:30pm CAD Unemployment Rate (May), Net Change in Employment (May).