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.