Pound remains buoyant following latest UK election polls

The Pound has hit some fresh highs against the USD this morning and continues to trade buoyantly after last week’s snap election announcement.

The latest election polls indicate that it could be a Tory landslide. Some traders are perceiving this as reducing UK political risk, as it would potentially give May more flexibility in Brexit negotiations and a softer exit, which has made the battered Pound look a bit more appealing. That said, Sterling is by no means out of the woods yet and it hasn’t rallied high enough to indicate that this move will continue. There’s still a lot uncertainty over the upcoming UK election and we still haven’t even started to negotiate our departure from the EU. Commentators have also stated that the pound has benefitted from April tax flows and typically performs well in April because of this.

In other news, the first round of French elections on Sunday came in as forecast by the polls (quelle surprise), with centrist Macron facing far-right La Pen’s national front in the second round on 7th May. It’s widely expected that Macron will easily win this (60%) which has further increased European political stability. The Euro made huge gains as soon as the currency markets opened on Sunday night as the polls looked correct.

Last night President Trump released a one-page plan proposing large corporation tax cuts, which has received a mixed reception. This would likely massively inflate their already huge budget deficit and help big multinational corporations (including Trump’s own businesses!). Trump’s team have defended the plans by maintaining that the tax cuts would increase in jobs and growth and therefore counteract the lost government revenues. Markets have been running on a bit of sugar high since his election victory and had generally priced-in a move such as this by Trump.

As a result, the GBP/USD is nearly up 1-cent from yesterday’s low and trades at fresh 6-mth highs. The GBP/EUR is down from last week but trading at the highest levels we’ve seen this week.

Next up we have the ECB interest rate meeting this afternoon and then UK/US growth figures tomorrow.

Pound rallies on May’s election gamble

The Pound has continued its ascent today following the shock general election announcement from Theresa May this morning.

Contrary to the norm with snap elections, the Pound has actually gained heavily as some big investors see this decision as a positive for the economy and for the upcoming Brexit negotiations. Although it’s a risky move by Theresa May, she has a big lead in the polls against a weakened Labour party, and she could go onto further increase the Tory majority in the Commons which should stabilise UK politics and offer more room to manoeuvre in the challenging EU talks.

The Pound has suffered huge blows since last year’s vote to leave the EU and many banks were forecasting further drops. Today’s announcement, however, has made some big banks change their minds about the future for Sterling and some major players (such as Deutsche bank) have now cut back on their Sterling-short positions, believing that a more orderly/cleaner Brexit could be on the cards.

Sterling has been particularly cheap over the last 6-mths and we might have seen a bit of turning point in its fortunes for now. There’s still clearly a lot of uncertainty still on the horizon though and politics is likely to continue to take a leading role in the rates.

As a result, and after an initial big drop, the Pound has pushed over some important resistance levels today. The GBP/EUR has pushed up over 1.5-cents since the announcement and now trades at a 4-mth high. The GBP/USD trades 2-cents higher and is moving towards the highest levels since the beginning of October last year.

Sterling bounces on robust job/wage numbers

Sterling has just bounced following some solid employment and wages data.

Unemployment figures came in line with forecasts at 4.7% but average earnings showed a slight uptick to 2.3% (vs. 2.2% forecast/previous). So overall a fairly robust set of job figures which again shows the resilience of the economy going into the start of Brexit negotiations.

On top of this, data yesterday showed that inflation is still above the Bank of England’s 2% target coming in at 2.3%. Together these bits of data lend support for an earlier rate hike by the BoE than previously priced-in which should give Sterling a bit more support. That said, there are clearly still lots of traders who are selling Sterling on any rallies and will continue to do so until more consistent positive data comes out (if it can).

Now that the official Brexit negotiations are underway, some market commentators have also stated that the Pound should be a bit less jumpy over every political comment that comes out. It’s therefore likely there might be a little bit of calm before the storm before the proper negotiations get going in a couple of months’ time. Although they will try and keep negotiations behind a closed door, with 28 member countries involved, it might be difficult for some things to not leak.

 

As a result, the GBP/EUR just hit a 6-week high and touched over its resistance level; a close above this could indicate a move higher. The GBP/USD hit a 9-day high which is up around a cent from yesterday’s low. Movements in the EUR/USD rate will determine which currency we make most ground on over the next few days.