Sterling Falls as Labour Rises in Poll

PAPHOS, Cyprus - May 26, 2017 - PRLog -- The Pound has fallen to the Euro and US Dollar today after a YouGov poll revealed the startling news that Prime Minister Theresa May's Conservative party won't win the 8 June general election by a landslide. The news that the Conservatives only have a 5-point lead over Labour knocked the Pound to a 2-month low against the Euro. The Pound is expected to gain value if Theresa May is the election winner, and drop if Jeremy Corbyn wins.

The US Dollar is performing stronger against the Pound today, after it was supported by the release of the minutes of a Federal Reserve (Fed) meeting, yesterday. Although the Fed remains cautious about the outlook for inflation in the US, the likelihood of an interest rate hike in June is strong.

Pound Sterling – UK Markets

On Friday, Sterling hit a two-month low against the Euro with the exchange rate between them set at €1.14. The British currency lost 0.8% in value against the single market currency. The Pound also plunged against its US counterpart by 0.7%, trading at $1.28, which is a two-week low.

The latest survey from YouGov showed that the gap between the Tories and the Labour got narrower, being now at 5 points (43-38). One week ago, the gap between the two parties that are the main competitors for June's parliamentary elections was at 9 points.

The survey's results shook the City's confidence that Theresa May will win the elections by a landslide. Investors and traders worry that if May doesn't have the mandate she demands, Brexit may prove more problematic than predicted.

Analysts from the Institute of Fiscal Studies (IFS), an influential economic think tank, warned that neither of the two major parties are being honest over the state of the UK economy. "The shame of the two parties' manifestos is that neither sets out an honest set of choices," the IFS reported.

US Dollar – US Markets

The US Dollar is gaining strength after the May Fed policy minutes showed that policymakers agree it will "soon be appropriate" to raise interest rates. This was balanced with the cautious additional statement that they would act to raise rates "if expectations of the recent economic data weakness being transitory were met."

This week's disappointing data releases included April's drop of 11% for month-on-month home sales. Also, the May manufacturing PMI came in at 52.5, below the predicted increase of 53.0. The economy appears to be slowly growing, since the service sector PMI surpassed expectations of a reading of 53.1 with a strong increase to 54.0, for May.

Today's US GDP release will indicate how the US economy fared in the first quarter of this year. The expectation is that the US Gross Domestic Product will have increased from 0.7% up to 0.9%, compared to the same period of time last year. The Dollar rose ahead of the report, indicating that the markets are optimistic the figures will be strong.  April's Durable Goods Orders figures will also be released, showing new orders for factory goods.

Today, James Bullard, St. Louis Federal Reserve President, expressed concern that US prices are 4.6% lower than they would be if inflation had continued at the Fed's target rate of 2% every year. He described the US's current low inflation rate of under 2% as "worrisome". He also thinks the Fed's plan to increase interest rates several times this year is "overly aggressive".

Euro – European Markets

The Euro hit a two-month high against the British Pound trading at £0.87. The single market currency outperformed also the US Dollar with the exchange rate between them set at $1.12.

The latest upbeat Eurozone economic data are boosting sentiment around the Euro. The German and the French economy are leading the Eurozone's revival. The German finance minister Wolfgang Schauble and Bruno Le Maire, the new French finance minister, have agreed to strengthen the Eurozone by giving a new impulse to stalled reforms of the currency union.

The European Commission's president Jean-Claude Juncker, at a G7 meeting press conference in Taormina, confirmed that Donald Trump described Germany as "very bad" for selling too many cars to the US. Juncker said that the issue of Germany's trade surplus had been raised during the talks he had with president Trump.

Other Currencies – Highlights

The British Pound lost 0.4% in value against the Australian Dollar, trading at 1.72 AUD. Despite the Aussie's good performance against the British currency, projections about the Australian economy are not good. The March quarter GDP data release is due on 7 June. The first forecasts suggest that the Australian economy is weakening. The ANZ banking group estimates a rise of just 0.1% q/q, in contrast to the strength of business sentiment and the improved labour market.

Sterling slumped against the New Zealand Dollar, losing 0.9% in value with the exchange rate set at 1.82 NZD. The country's finance minister, Steven Joyce, released the annual government budget that pledges to protect family incomes. Lower and middle-income families are going to be helped by raising the thresholds at which higher tax rates kick in. Joyce said that 1.3 million families will benefit by the tax cut.

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