Hung Parliament hampers Pound
UK Consumer confidence edged higher to -5 from -7 previously while there was a 0.4% decline in shop prices in the year to May; the slowest decline for over three years as food prices continued to rise.
The majority of recent opinion polls continue to suggest that the Conservative Party’s lead had narrowed since the start of the campaign. Significantly, the polls still indicate a solid lead, easing political concerns and assisting the Pound’s push back up through 1.1500 against the Euro. Sterling found support on approach to the 1.2800 area against the Dollar on Tuesday and gained ground with a test of resistance above the 1.2850 level during the session in choppy trading conditions.
Late in US trading a fresh constituency poll suggesting the Conservatives could fail to gain a majority triggered fresh Sterling selling and another test of the 1.2800 support area. Sterling was unable to recover at market open with the potential of some month-end selling.
After hitting session tops in the 97.40 region, the US Dollar Index, which tracks the buck vs its main competitors, has now receded to the 97.30 region. The index came under renewed selling pressure this morning, surrendering part of its initial gains. Nothing out of the ordinary has happened to the Greenback so far this week, which keeps oscillating between US politics and market chatter of a potential rate move by the Fed next month. In fact, according to Reuters’ FedWatch tool, the probability of higher rates in June is currently at 85.5%.
In the US data space, only second-tier releases are expected today: pending home sales and the Chicago PMI will precede the release of the Fed’s Beige Book.
The EURUSD pair managed to recover the early losses led by renewed worries over Greece’s financial situation and the possibility of a default. The recovery was backed by the Greek Finance Minister Euclid Tsakalotos’ clarification that his bailout comments were “distorted” and denied earlier reports that the country may opt out of getting its next bailout payment if creditors fail to agree on debt relief.
Meanwhile, investors on Tuesday shrugged off a slight disappointment from the preliminary release of German inflation figures for May, coming in to show 0.2% month-on-month drop in prices with the yearly rate falling to 1.5% from last month’s 2.0%. Investors now look forward to the preliminary release of composite Eurozone inflation numbers, due later during the European session.
Eurostat will publish the Eurozone’s inflation first estimate for May at 09.00BST today. Consumer prices are expected to show a decrease to 1.5% on a yearly basis, following a 1.9% reading seen previously. While the core figures are also expected to decline to 1.0% versus 1.2% previously. If the CPI comes in weaker-than-expected, it could knock EURUSD back towards daily lows of 1.1165 levels.
Data to Watch:
7:00am EUR CHF UBS Consumption Indicator (Apr).
7:45am EUR FRA Consumer Price Index (EU norm) (YoY) (May).
9:00am Unemployment Rate s.a. (May), Unemployment Change (May).
9:00am EUR ITL Unemployment (Apr).
9:00am EUR CHF ZEW Survey – Expectations (May).
9:30am GBP Consumer Credit (Apr), Mortgage Approvals (Apr).
10:00am EUR Unemployment Rate (Apr), Consumer Price Index (YoY) (May), CPI – Core (YoY) (May).
2:45pm USD Chicago Purchasing Manager’s Index (May).
3:00pm USD Pending Home Sales (MoM) (YoY) (Apr).
7:00pm USD Fed’s Beige Book.