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Safe haven flight undermines the Sterling

Safe haven flight undermines the Sterling

GBP
The Pound was unsettled yesterday by political considerations after opinion polls suggested the Conservative Party’s election lead had halved. A policy surrounding social care triggered some degree of uncertainty surrounding the potential outcome and has subsequently been removed from the manifesto.

Forthcoming EU exit talks also raised concerns, hampering sentiment amid expectations of a hard negotiating stance and the risk of a breakdown in exit talks. European Union’s chief Brexit negotiator, Michel Barnier, has said he does not want to consider talks collapsing.

There were no major UK economic developments during the day with some concerns that Sterling had priced in all the potential favourable developments over the next few months. Sterling continued to hit selling interest above the 1.3000 level against the Dollar.

Sterling was undermined by the explosion in Manchester last night. The UK currency was held below 1.3000 against the Dollar and the Euro below 1.1538 at market open.

USD
Trump’s trip to the Middle East and Europe may have taken some of the heat off his administration in the last couple of days. However, the markets still doubt just how quickly he’ll be able to implement his economic agenda. The slowdown in the process, as Capitol Hill gets bogged down on other issues related to investigations into a Russian connection, may mean a slower schedule for rate hikes. Lower rates for longer are going to reduce the appeal of the US Dollar.

Worse for President Trump, the Washington Post is again reporting from anonymous sources that the president directly asked two top intelligence chiefs to push back against the FBI investigation into #Russiagate.

Testimony from former FBI Director Comey scheduled for tomorrow has been postponed so he can first talk to his old colleague, the Special Counsel investigating #Russiagate, Robert Mueller. As such, the market is waiting for clarity while pressure continues to mount on the White House. One wonders what was written on the note that Trump slipped into the Wailing Wall in Jerusalem yesterday.

EUR
Yesterday’s Eurogroup meeting produced no Greek debt deal, although the overall market impact was limited with markets expecting something within the next few weeks. Angela Merkel commented that the Euro was too weak due to policies pursued by the European Central Bank (ECB) and this was a causal factor of the high German trade surplus.

The comments triggered a fresh Euro break above 1.1200 against the Dollar and a fresh six-month peak above 1.1250. This also comes with expectations that the Trump Administration would welcome a weaker Dollar in an attempt to curb the US trade deficit.

Eurozone flash PMI data will be analysed for further evidence on growth and inflation dynamics. A further strengthening from the six-year highs recorded for April would increase pressure on the ECB to shift towards policy normalisation and sanction at least a change in rhetoric at the June meeting.

Data to Watch:
7am EUR GER Gross Domestic Product n.s.a. (YoY) (Q1), GDP w.d.a. (YoY) (Q1), GDP s.a. (QoQ) (Q1).
9am EUR GER IFO – Current Assessment (May), IFO – Business Climate (May), IFO – Expectations (May). EUR Markit Manufacturing PMI (May), Markit Services PMI (May), Markit PMI Composite (May).
9:30am GBP Public Sector Net Borrowing (Apr).
10am EUR EU Financial Stability Review.
11am GBP Inflation Report Hearings (Report).
2:45pm USD Markit Manufacturing PMI (May), Markit Services PMI (May), Markit PMI Composite (May).
3pm USD New Home Sales Change (MoM) (Apr), NHS (MoM) (Apr).

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