Currency Note

No surprises in French election

By Paul Redmond May 8th, 2017

French election

As expected, the French voted the moderate candidate Macron in as President. This was a rejection of the extreme right politics of Le Pen and the euro weakened slightly against the pound. The jubilation for the new President was short-lived as he leads a brand new party with no members in the French parliament and, with these elections due in June, it is straight back to the campaign trail.

GBP: Goldman Sachs warns of Brexit ‘stall’

Last Friday, the Chief Executive of the world’s second largest investment bank. Goldman Sachs, warned that London ‘will stall’ because of the risks associated with the Brexit process. Lloyd Blankfein stated that both sides in the negotiations were playing for very high economic stakes. He also revealed that the bank has ‘contingency plans’ to move people, depending on the outcome of the negotiations. His interview highlights the uncertainty that continues to surround Brexit.

In the meantime, sterling remained positive as the Tories gained ground in local elections across Britain at the expense of Labour and UKIP. While this does not necessarily reflect the outcome of the general election, it does not bode well for Labour, especially considering that opposition parties normally fare better in local elections than the governing party.

Looking to the week ahead, the key event will be the Bank of England’s Super Thursday, where they will release their interest rate decision, quarterly inflation report, update on growth and inflation forecast, and hold a press conference to answer questions.

EUR: Macron calms market’s political fears

The French elections dominated the weekend news. As expected Macron has emerged victorious. Before the weekend he went into the polls with a clear 18-20 point lead with the exit polls indicating this has in fact been closer to 30%. His inauguration should be within ten days but given he is leading a brand new party with no members in parliament he will be very much focused on changing this in the upcoming elections in June.

From To

 
After the result of the French elections, the euro weakened slightly against sterling.

It is fairly quiet on the economic docket this week. The economic release to note is the first release of the first quarter (Q1) German Gross Domestic Product figure. As the largest nation in Europe, it will be closely watched and, given the positive data of late, we should see a positive number.

USD: dollar drops but nonfarm payrolls spike

The US dollar hit its lowest level in approximately six months against both the euro and pound after data showing the US jobs growth rebounded sharply. The unemployment figures were not enough to shake investor bullishness towards the euro and sterling.

US nonfarm payrolls surged by 211,000 jobs last month the labour department said, beating expectations of economists polled by Reuters, who were expecting a gain of around 185,000. This means that the unemployment level currently stands at 4.4% – the lowest level since May 2007. However, the payrolls were revised further downward for March’s number by another 19,000, taking the number down to 79,000.

Earlier in the week the Federal Reserve did as expected and kept interest rates on hold. In their statement, they dismissed the very weak growth in the first quarter (Q1) as ‘likely to be transitory’, signalling that they remain on course for another rate hike in June. The market is now pricing in a probability of 94% that the rate hike will be 0.25% in June 2017, against a 67% probability prior to the Fed meeting.

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