GBP: Sterling Sheds Gains, Conservative DUP Deal Fails to Impress
Following some two weeks of negotiations, Theresa May has finally propped up her minority government by striking a deal with the Democratic Unionist Party (DUP).
In exchange for a £1 billion investment in Northern Ireland, the DUP have agreed to a ‘confidence and supply’ arrangement that gives May the necessary numbers to pass her Queen’s speech and new bills.
Whilst this did remove some anxiety – with Sterling initially gaining momentum – many traders are waiting for Thursday’s Queen’s speech vote before they reassess the state of the UK’s political situation. Indeed, it was not long into the day that the Pound lost its gains as anxieties abound that May’s position as Prime Minister is not a secure one.
Mark Carney, Governor of the Bank of England (BoE) spoke at the Financial Stability Report press conference this morning, though his speech did not encourage any significant changes in rate hike bets. Sterling remained bearish following his comments.
EUR: Upbeat Mario Draghi Speech makes GBP/EUR Stumble
EUR exchange rates gained as President of the European Central Bank (ECB) Mario Draghi spoke today, expressing optimism that his bank’s policies will help restore inflationary pressures to target levels in the Eurozone. Overall his speech was quite positive. Draghi stated:
‘Political winds are becoming tailwinds. There is a newfound confidence in the reform process, and newfound support for European cohesion, which could help unleash pent-up demand and investment.’
The Euro has been propelled as a result.
Yesterday’s session saw the Pound to Euro exchange rate trading within a relatively narrow band as markets digested news that Theresa May’s EU citizen rights offer had come under fire. EU chief negotiator Michel Barnier claimed that Britain needed ‘more ambition, clarity and guarantees,’ – calling for the UK to guarantee similar protection for EU citizens as under EU law.
Whilst the offer does mark a shift in negotiation strategy towards the amicable, the fact that EU leaders are not satisfied with the deal could suggest that May’s position is being regarded as insecure, which could prevent her from gaining a positive deal overall. A pessimistic outlook, and one that could cause Sterling future trouble against the Euro.
USD: GBP/USD Trades within Narrow Band, Despite Downbeat US Durable Goods Print
Sterling has levelled out somewhat against the US Dollar following its brief rally yesterday – despite the disappointing US Durable Goods Orders figures.
Durable Goods Orders fell by -1.1% in May, lower than expectations of a dip of -0.6%. This is the second decline in a row and indeed the worst score the US has had in some six months. Because of this, the US Dollar was unable to effectively capitalise on the tribulations of Sterling.
The big US data expected today includes the US consumer confidence index and a Federal Reserve report from Chairwoman Janet Yellen. Should Yellen hint at any sign of sooner-than-anticipated US monetary policy tightening, then the Pound may well come under some increased pressure against the US Dollar, regardless of what the consumer confidence figure is.
CAD: Pound to Canadian Dollar (CAD) Drops Half a Cent
Sterling has calmed down since last week’s rally, dropping roughly half a cent against the Canadian Dollar in the wake of traders being apprehensive about Thursday’s Queen’s Speech vote.
BoE Governor Mark Carney’s speech today did not overly impress markets. When asked about the role that interest rates play, Carney responded that interest rates are a ‘last line of defence.’ Overall he maintained a dovish outlook.
The BoE launched a range of new stimulus measures to prop up the economy after the shock Brexit vote. Now, a year on and in the wake of a storm of political uncertainty, the economy has slowed but not crashed as some had predicted, this could mean Carney might be inclined to remove some of the stimulus measures. Should this occur, the Pound could capitalise on the current position of the crude oil-sensitive ‘Loonie’ and rise, conversely a cautionary attitude could push the Pound lower.
AUD: Risk Appetite Improves Demand for Australian Dollar (AUD)
The Pound fell against the Australian Dollar yesterday, despite PM Theresa May finally reaching a deal with the DUP. The ‘Aussie’ Dollar benefitted from an increase in global risk appetite, as commodities and high beta currencies jumped in value. The risk sentiment attached improved in response to expectations that the Fed will not be raising interest rates again in 2017.
NZD: Sterling Unable to Maintain Gains against New Zealand Dollar (NZD)
It was announced yesterday that New Zealand’s trade surplus narrowed in May, coming in at NZ$103 million compared to the previous month’s NZ$343 million. Whilst this data did temporarily hurt the ‘Kiwi’ Dollar, other positive data, such as an increase in export values and overall rising risk sentiment buffeted it.
The Pound, despite Brexit negotiations beginning and the DUP deal being struck, has been unable to hold its ground against the ‘Kiwi’ Dollar. BoE Governor Mark Carney’s dovish speech today did have some positive notes, but not enough to move the Pound significantly.
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