Politics and the Pound: Not a good mix
Politics and the Pound have not mixed well lately. Sterling remains under pressure as the race to replace Theresa May gathers steam. The market is, however, hoping for a quick return to the Brexit process and investors are waiting for more clarity on future exit plans. Adding to the woes were quarterly results of the Confederation of British Industry (CBI) that portrayed all around pessimism for service sector companies in the UK.
It is expected that the GBP/USD pair will remain volatile with the ongoing “waiting game” to linger in the absence of any significant economic data releases. The pair slipped to lows near 1.2650 on the back of the Mirror’s news indicating Brexit uncertainty around opposition Labour party leader Jeremy Corbyn’s support for a second referendum.
The US Dollar had a rather mixed session yesterday, albeit gained some traction against its European counterpart. As traders returned after an extended weekend in the US and UK, growing concerns about a full-blown between the world’s two largest economies turned out to be one of the key factors that benefitted the greenback.
China-US trade relations remain in limbo. Investors are reading the tweets and lips of the US President are growing increasingly nervous about more taxes on goods. On the economic data front, the Conference Board’s US Consumer Confidence Index climbed to 134.1 in May and remained supportive of the Dollars bid tone. Meanwhile, the US Treasury bond yields resumed the recent decline and tumbled to the lowest level since September 2017 though was not reflecting much in the Dollar price action.
All eyes will be on preliminary US GDP data due for release tomorrow. The market expects currencies to stay within recent trading ranges over the course of today.
German bond yields fell yesterday which had a negative impact on the single currency. Yesterday also saw a stronger day for the Dollar, meaning the Euro struggled further. There were also concerns over Italy and it’s fiscal health which did nothing to help the currency. Italy’s willingness to ignore EU regulation is definitely cause for some concerns as it somewhat undermines an already under siege union. Today sees the debate over who will be the next EU leaders, especially the EU President, which will be of interest to traders as it could see some political posturing between countries.
France releases its CPI data and GDP figures, which is then followed by a speech from the German Buba President Weidmann. Swiss KOF leading indicator, a speech by the European Central Bank’s (ECB) Mersch then German unemployment follows. This represents the most significant data today and will cause the most volatility, but, as has been the case over the last few weeks, political factors will have a greater effect.
Data to watch:
01:10 NZD RBNZ’s Governor Orr speech
07:00 EUR German Buba President Weidmann speech (Germany)
07:00 CHF KOF Leading Indicator (May)
07:30 EUR ECB’s Mersch speech
07:55 EUR Unemployment Rate s.a. (May) (Germany)
07:55 EUR Unemployment Change (May) (Germany)
08:00 CHF ZEW Survey – Expectations (May)
14:00 CAD BoC Rate Statement
14:00 CAD BoC Interest Rate Decision (May 24)
22:45 NZD Building Permits s.a. (MoM) (Apr)
23:50 JPY Foreign Investment in Japan Stocks (May 24)