Euro hit by latest French election poll

The Euro has weakened after an opinion poll showed that far-right French presidential candidate Marine Le Pen is making ground on her opponents (Macron and Fillon).

Although still unlikely, the closer she gets to the second round of the elections in May, the more fear there will be of another shock populist vote. Her party are anti-EU and a win would most likely lead to a Frexit, which would probably see the demise of the EU.

Politics is still the main driving force behind the rates and markets remain very twitchy over any new developments. At the moment, focus appears to be switching slightly away from the UK and more towards Europe, as the Dutch and French election get nearer. Any further signs of populist movements gaining momentum will likely cause large moves in the rates.

As a result, the Pound has pushed to a 2-mth high against the Euro, having moved 2 cents higher from last Friday. The EUR/USD rate is towards the lowest levels of the year but the GBP/USD remains fairly buoyant.

Pound hit by weaker UK retail sales figures

Sterling has just weakened following some poor UK retail sales figures.

Data showed that retail sales unexpectedly fell for a third month last month, with year-on-year figures coming in at just 1.5% versus an expected 3.4%.

The figures add to this week’s run of weaker-than-expected numbers (including weaker wage growth and lower inflation readings), which increases investors’ fears that the effects of Brexit may finally be starting to bite. So far the UK economy has been fairly resilient but cracks might be emerging and it appears that consumers are beginning to reign in their spending as prices rise. The Bank of England are certainly in no rush to raise interest rates and this week’s figures will certainly lend support to their current position.

In other news, the US have had some strong pieces of data this week (including high inflation) and Fed Chairwoman Yellen indicated that another rate hike is on its way. This created mini Dollar rallies but hasn’t pushed it as far as you might think, presumably because of the latest US political issues out this week. A lot of the US rate hikes have also been priced in. If their economy keeps performing so well, however, then you would expect the Greenback to make some additional gains from here.

As a result, both the GBP/USD and GBP/EUR have just dropped over 1-cent each and look to be moving to 10-day lows.

Sterling recovers earlier losses following strong industrial output numbers

The Pound reversed earlier losses this morning following stronger-than-expected industrial production figures and data showing our trade deficit has narrowed.

UK leading indicator data releases, which are used to predict changes in the economy, have disappointed slightly over the past 10-days making investors nervous that the impact of Brexit is finally becoming evident. This morning’s data, however, indicates that the economy is still behaving robustly in spite of the UK’s vote to leave the EU last June.

Many traders are still reluctant to heavily buy the Pound, however, due to uncertainties that lie ahead. The Bank of England are also remaining on the fence, despite rising inflation levels, which has reduced the odds of a nearer interest rate hike and therefore the appeal of Sterling. If inflation continues to rise and growth ticks higher, however, this stance could quickly change and some policymakers (such as Kristin Forbes) are already beginning to become quite vocal about this.

In other news, the USD has been supported as President Trump signalled that a “phenomenal” tax plan is to be announced shortly. Investors feel that tax cuts could really help stimulate the US economy and consequently make the dollar more attractive. This effect, however, seems to contradict Trump’s aim of trying to reduce imports and increasing exports, as a stronger dollar will clearly do the opposite. Watch this space to see how he deals with this issue.

Sterling drops after BoE kick the can along the road

Sterling has given up some recent gains after the release of the latest BoE Quarterly Inflation Report.

Although they raised their growth forecasts, which was widely anticipated, they didn’t seem overly concerned about inflation moving higher and potentially pushing well over their targets over the next few years. They continued the neutral stance they took during last November’s report by stating that they stand ready to move interest rates up or down depending on what happens with the economy. The uncertainty over Brexit is clearly a concern and that a wait-and-see approach is currently their favoured course of action. Many traders were disappointed by this, as they felt the BoE would start to show more concern over rising prices and angle more towards monetary tightening.

As a result, Sterling has lost around 1.5-cents against the Euro, pushing back to Tuesday’s levels. The GBP/USD dropped just over 1% and therefore gave up all the gains it made throughout yesterday. Evidently the Brexit situation is going to continue to hinder Sterling gains. It takes a lot of positive news to make it edge slightly higher but not a lot of bad news to push it lower. Until we get a lot more clarity over Brexit (which might be a while), any significant gains Sterling makes against the majors is more likely to come from weakness in those currencies rather than from dramatic Pound strength.

Next up we have key UK job figures out tomorrow afternoon. As always, please make us aware of any upcoming requirements.