Sterling initially lost half a cent against both the US Dollar and the Euro on the announcement that Prime Minister Theresa May will be making an unscheduled announcement and speculation rose on what this could be. Once Theresa May announced the news that she would be calling for an early election, the Pound rose to a than six-month high against the Dollar. This surprise announcement boosted hopes that a victory could strengthen the conservative party’s majority in government ahead of Brexit negotiations.
May called for an early election on June 8, saying she needed to strengthen her hand in divorce talks with the European Union by bolstering support for her Brexit plan. Market participants are reading this as something that creates a more stable political outlook through which Brexit can proceed. This is viewed as positive.
The dollar index edged away from three-week lows on Wednesday, as a resurgent Sterling gave back some of the gains it made after British Prime Minister Theresa May called an early general election ahead of Brexit negotiations. The dollar index, which tracks the greenback against a basket of six rival currencies, edged up 0.1% to 99.633, pulling away from its overnight low of 99.465, its deepest trough since March 28.
In an interview on Monday, US Treasury Secretary Steven Mnuchin reiterated his view about the long-term strength in the US Dollar. He said, “As the world’s currency, the primary reserve currency, I think that over long periods of time the strength of the Dollar is a good thing. It’s a function of the confidence and the strength of the US economy.” Talking down the US Dollar is not a part of the strategy. The Treasury secretary was making a factual comment about the strength of the Dollar in the short term.
European leaders reacted to Theresa May’s shock election announcement by comparing Brexit to a Hitchcock thriller – but insisting negotiations would not be affected. Donald Tusk, President of the European Council, commented on the news by tweeting: “It was Hitchcock, who directed Brexit: first an earthquake and the tension rises.” The joke was a reference to director Alfred Hitchcock’s famous quote that “a good film should start with an earthquake” and be followed by increasing tension.
Critics claimed the bemusing tweet was a suggestion that the political ramifications for the UK from the Brexit vote were only beginning to be felt. Mr Tusk also said he had a “good phone call” with the Prime Minister about the early election, during which Mrs May underlined the UK’s “deep and special partnership” with the EU.
The European Central Bank’s (ECB) Benoît Cœuré and Peter Praet are both due to speak in New York. Markets will stay alert, anticipating comments regarding how tolerant the ECB will be in seeing lower inflation prints ahead, and to comments on whether or not ‘exit easing’ discussions are ongoing at the Governing Council.
Data to Watch:
10:00am EUR Trade Balance s.a. (Feb), Trade Balance n.s.a. (Feb), Consumer Price Index – Core (MoM) (Mar), CPI – Core (YoY) (Mar), CPI (MoM) (Mar), CPI (YoY) (Mar). 7:00pm USD Fed’s Beige Book. 11:45pm NZD Consumer Price Index (QoQ) (Q1), CPI (YoY) (Q1)