Sterling starts the week within touching distance of the lows that it made last week as Westminster ripples turned into waves of pain for the pound. Despite the headlines from the European elections, the results have gone roughly as to what had been widely predicted beforehand and sterling has remained somewhat inert so far this morning.
It is difficult to read too much into the results given the relatively weak turnout and, therefore, extrapolating these numbers into a general election scenario is little more than guesswork. The news remains that we are now looking at two scenarios for Brexit – a revocation of Article 50 following a 2nd referendum or a No-Deal Brexit that becomes policy either under a new Conservative PM or simply on the basis that Westminster can’t get anything agreed by the end of October.
As we have noted many times before, the impact on sterling is not to see huge chunks of value taken out of it on a daily basis but more that investors will prefer to back other currencies well before they look at the pound such is the political farce that governs the currency’s trading.
The Tory leadership contest is now almost a structural risk for the pound; if the winner of the poll of Tory party members is a no-deal advocate then sterling is in for a very tough summer.
Comments from President Trump that the U.S. is not ready to make a deal on trade with China have largely been overlooked through last night’s Asian session with the dollar, Japanese yen and Chinese yuan also proving to be quiet.
To have held on to trading ranges of about a cent against the EUR and 2 cents against the CAD in the past few weeks shows that a further rally of the USD is not as clear-cut as some had hoped before. Trump’s insistence of tough trade talk against China, Japan and the European Union will remain a factor as long as these countries disagree on the resolutions to the world’s trade problems.
U.S. consumer confidence is due this afternoon and will underline the growth in consumer spending that remains the main driver of U.S. growth through the first part of 2019.
Much like in the UK, the wider European election results went roughly as had been expected. The centre-right European People’s Party (EPP) and centre-left Socialists and Democrats (S&D) lost their majority, protest votes for both Green and Liberal parties increased and nationalist/populist parties failed to record more than a quarter of the vote.
The impact on the single currency has been marginal overnight, however, with investors instead focused on the likelihood that the European Commission will impose as much as a EUR3.5bn fine on the Italian government for breaching deficit levels.
European consumer confidence is also due this morning.
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