Currency Note

Tories still show healthy lead as Corbyn pounces on May

By Christopher Nye June 6th, 2017

Corbyn pounces

The pound began yesterday by inching back over US$1.29 after a new Guardian/ISM poll put the Conservatives on an 11-point lead with just three days to go to Thursday’s election. However, YouGov’s new election model still shows that the Tories will only win 305 seats, 21 short of an overall majority. That opens up the possibility of a coalition between Labour and the Scottish National Party, though perhaps the Liberal Democrats will do what they did when Nick Clegg was at the helm.

Nobody knows what is going to happen, so now might be a good time to contact your trader to discuss currency risk management strategies! We understand that with each passing day there could be a clamour for currency support and advice, so we’ll be extending our opening hours to 8am – 7pm on Thursday and 7am – 7pm on Friday. We’ll also be producing a daily round-up of election news; content you can read to your heart’s.

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GBP: UK services data weakens ahead of elections

The political campaigning resumed this morning, following the temporary suspension in the wake of the weekend atrocities in London. The vote will go ahead Thursday as planned and, while it is too early to know whether the attack will have an impact from a purely electoral point of view, the country came together in heart, mind and spirit which is something we should all be proud of.

The final weekend of polls yet again produced a wide range of views on the winning margin. The latest Guardian/ISM poll put the Conservatives at 11 points ahead, while YouGov maintains that the Tories won’t get the 326 seats needed for a majority. The uncertainty looks set to continue throughout the week. Meanwhile, Jeremy Corbyn was asked in an ITV interview if he supported calls for May to resign. He said he would, because during her time at the Home Office she ‘presided over … cuts in police numbers.’

Data for the UK’s dominant sector, the service sector, which accounts for nearly 80% of economic activity, was released, albeit slightly under expectation. The purchasing managers’ index posted a reading of 53.8, well below the 55.0 forecast by economists and the 55.8 recorded in April. However, the fact it is still above 50 shows the sector is still expanding, just at a slower pace.

Economic data is quiet today, but politics will no doubt continue to dominate the airwaves.

EUR: single currency weakens ahead of ECB meeting

The euro weakened slightly yesterday, ahead of the ECB meeting on Thursday. There will be a lot of focus on the meeting which is being held on the same day as the UK elections. There should be a flow of positive data from the Eurozone, though we did see inflation taper somewhat last week.

There’s been some speculation that the ECB could change the rhetoric following the interest rate decision on Thursday. This is seen as a move to signpost to the market their intent to slow the asset purchasing via quantitative easing.

If the messaging leans towards tightening monetary policy then we could see the euro strengthen on the back of that. On the other hand, if the message is slightly dovish the euro could lose momentum.

Ahead of this meeting, the Eurozone services PMI was revised slightly higher than the flash estimate, indicating that overall economic growth is likely to remain robust in the second quarter.

USD: quiet week for the dollar … until Thursday?

The general election in the UK will continue to dominate the headlines until Thursday, when former FBI Director James Comey is due to testify before the Senate. There is no telling what that could do to the dollar – it depends on what is said, but the world will be watching closely and so will we.

In terms of macro-data, the US economic data flow has a quiet week. The only release of note came out yesterday, as US non-manufacturing ISM was reported as 56.9, slightly below forecast and the previous month’s figure of 57.5. Investors were hoping for better, which would have resulted in a firmer pace of growth.

It remains to be seen whether the rate hike expectations will be solidified next week.

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